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S&P 500 records best day since July: Here’s why

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Wall Street rallies off 4 key economic policies.

Wall Street has had its best day in months, after the UK dumped its controversial tax cuts and US manufacturing fell.

Combined, it eased fears of continuing rate hikes.

In response, the Dow Jones surged almost 3%, while the S&P 500 was up 2.9% and the Nasdaq Composite added 2.7%.

Meanwhile Australia's ASX 200 started the morning strongly.

Saxo's market strategist Jessica Amir points out there were a few factors that excited investors.

"Firstly, the UK government did a U-turn and will reverse plans to scrap the top rate of income tax," she said.

Adding to it was the United Nations calling on the Federal Reserve (the Fed) to halt interest rate hikes.

"Thirdly, what also boosted sentiment was that 2 Fed speakers at the weekend, Brainard and Daly were reportedly discussing the downside of hiking too fast."

"And fourthly, weaker than expected US economic news came out with; US manufacturing falling for the third time in 4 months."

Why is US manufacturing falling good for markets?

The stock market responded positively to the news that US manufacturing activity grew at its slowest pace in nearly 2.5 years.

While this might sound like bad news for the economy, remember inflation is still running rampant.

And the markets are closely watching interest rates.

Combined, a weakening manufacturing sector suggests inflation could slow, which in turn limits how quickly the Fed needs to lift interest rates.

Is it simply a relief rally?

Despite an upbeat market, Global X ETFs' chief investment officer Jon Maier opines the worst might not be over for the S&P 500.

Instead, he points out the good news overnight could've been a relief rally, with the economy still under pressure.

"We expect macro headwinds will continue to pressure US corporate earnings in the coming months, which warrants a lower exposure to global factors, particularly those stemming from a strong dollar and Europe," Maier said.

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