the dow jones industrial average had its biggest oneday advance in more than three months on monday as investors factored in the possibility that the federal reserve might be forced to back away from aggressively tighter monetary policy as of last week the sp 500 had fallen for three consecutive quarters down by 248 over that time and lost 93 in september the biggest monthly decline since march 2020 on friday the dow and sp 500 posted their lowest finishes since november 2020 while the nasdaq saw its lowest close since july 2020 concerns over financial stability reverberated as a new week trading month and quarter got under way on monday the worry centered on swiss banking giant credit suisse csgneb which saw its shares touch a record low on monday before recovering as the cost of insuring the banks debt against default continued to rise the banks troubles have investors weighing the risks of a 2008type lehman brothers collapse that might trigger a broader financial crisisreadcredit suisse woes prompt calls to analysts asking if us banks risk a contagion impact key wordsi do not think this is a lehman moment mohamed elerian says of credit suisse us stocks seemed to benefit from the badnewsisgoodnews dynamic that has occasionally buoyed equities growing warnings about a potential us recession were accompanied by renewed chatter about the possibility of a fed pivot suggesting a risk that investors are again underestimating the feds resolve as it seeks to tackle inflation said deutsche bank research analyst henry allen it is fair to say that the market is now wondering aloud if all this talk about getting inflation under wraps is something they at the fed could adhere to in the context of a lot of stresses coming into the market said tom porcelli the new yorkbased chief us economist for rbc capital markets its a completely fair thing for the market to wonder about i dont want to make a lot out of one days moves but the commentary from people we are talking to is also a reflection of that theres no question the fed wants to get inflation under control porcelli said via phone on monday the bigger question is are they under autopilot until inflation moves back to a level they are comfortable with or do other factors come into play that could derail their plansreadun calls on fed other central banks to halt interestrate increases early gains in major stock indexes were extended after the institute for supply management said its closely watched manufacturing index fell to a 28month low of 509 in september or the lowest level in more than two years as high inflation and rapidly rising us interest rates began to rattle the economy economists polled by the wall street journal had forecast the index to drop to 52 from 528 in august meanwhile fedfunds futures traders backed away from their expectations for fed policy makers to lift the main policy rate target to between 475 and 5 in 2023 according to the cme fedwatch tool fed officials have delivered five rate hikes this year three of which were 75basispoint moves traders now mostly see the fedfunds rate target getting to between 425 and 45 by december up from a current level between 3 and 325 the market is clearly positioning for a fed pause after the december fomc meeting said ed moya a senior market analyst for the americas at oanda corp referring to the ratesetting federal open market committee whether its weaker manufacturing data more financial risks to the system that are growing or fears that the housing market is cooling too fast theres so much risk on the table that it may be difficult for the fed to remain this aggressive traders and analysts said stocks were technically overdue for a shortterm bounce anyway after a brutal selloff but they still expressed caution market internals are shot to pieces with 17 of sp 500 companies trading above their 20day moving average 32 of companies sporting a relative strength index below 30 signaling oversold conditions and 35 of companies at new 4week lows said chris weston director of research at pepperstone in a note this ultrabearish sentiment plays into the risk vs reward tradeoff and it suggests if we hear something remotely positive and we see better flow the result will be a pronounced equity counterrally which may motivate funds to reduce us dollar long positions as the default equity hedge he wrote but investors could also be in for another brutal week weston said noting that liquidity remains a core consideration that exacerbates moves as funds try and get out of positions there was some calming news from the uk where a government uturn on tax policy that had roiled equity and fixedincome markets last week helped push sovereign bond yields lower on monday the benchmark 10year treasury declined 152 basis points to 365 as the equivalent duration uk bond eased 19 basis points to 396 readopec could cut oil production because its trying to halt a sharp crude selloff