Relief flooded Wall Street on Monday after a number of Federal Reserve speakers took a dovish turn following increasingly hawkish rhetoric coming out of the central bank.
The S&P 500 was up 1.5%, the Dow Jones Industrial Average gained 1.3%, and the Nasdaq added 1.7%.
The central bank should be cautious in raising rates too quickly, Federal Reserve Gov. Lael Brainard said in a heavily scrutinized speech to the Chicago Council on Global Affairs on Monday afternoon. Brainard said soft inflation and economic uncertainty requires "prudence in the removal of policy accommodation."
"I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation," she said in prepared remarks. The cautious comments come as a relief to a market churning with uncertainty over the Fed's timeline.
Brainard's "remarks suggest that the Fed is more than comfortable remaining on the sidelines next week," said David Tulk, head of global macro strategy at TD Securities. "The characteristics of the 'new normal' emphasize that patience is warranted, and that the case [for] preemptive policy action is less compelling. If the Fed were considering a move next week, they would likely want to get the market closer to being onside and one would expect a less dovish assessment of the outlook."
The chance of an interest rate hike in September fell to 15% on Monday, down from a 24% likelihood at the end of last week, according to CME Group fed funds futures. The majority of investors are banking on a rate hike in December. Chances of a move during the Fed's final meeting of the year sit at 48%.
In other Fed news, Atlanta Fed President Dennis Lockhart skirted a discussion of the Fed's interest rate plans in a speech on Monday morning, pointing to the highly sensitive nature of markets.
"Financial markets seem to be very sensitive to remarks of Fed speakers at the moment," Lockhart noted on Monday. Lockhart did suggest a possible upcoming hike, though, arguing that economic data requires "serious discussion of a policy rate increase."
Minneapolis Fed President Neel Kashkari eased concerns over a September hike, arguing that current economic issues cannot be fixed by monetary policy, which lessened the need to act sooner.
"There doesn't appear to be a huge urgency to do anything," Kashkari told CNBC. Kashkari, a non-voting member, said he wants to see an improvement in core inflation before action is taken.
One advocate for raising rates is JPMorgan CEO Jamie Dimon, who called for a hike "sooner rather than later" in comments at the Economic Club of Washington. Dimon noted that "25 basis points is a drop in the bucket" and that the Fed should act now to avoid being behind the curve.
Wall Street ended Friday with its worst selloff since the Brexit decision in late June, as worries peaked over when the Fed would next tighten monetary policy. Benchmark indices also closed with their first move of more than 1% since July 8.
"After a very quiet summer, where stocks traded in a very narrow range for the past six weeks, Friday's decline jarred many into revisiting the assumptions about overall market conditions," Paul Nolte, financial analysts at Kingsview Asset Management, wrote in a note. "With so many conflicting signals from the economic data, central bank chatter and nervous investors, it is little wonder that the selling was as intense as it was on Friday. We'll see if cooler heads prevail this week."
Recent weak economic data, including a slowdown in services activity and a weaker-than-expected August jobs report, have undermined investor confidence in the U.S. economy. At the same time, central bank members have shifted their rhetoric to sound more hawkish, suggesting that the U.S. economy is near or at the levels that warrant another rate hike.
Crude oil traded higher on Monday, paring some of the gains suffered on Friday. Oil declined at the end of last week as worries continued over the poor chances of a production freeze agreement when Organization of Petroleum Exporting Countries meet later this month. Domestic production was also a concern after a weekly reading on Friday showed another increase in the number of active oil rigs in the U.S.
A monthly report from OPEC out on Monday showed non-OPEC supply for next year revised to a higher level, an indication of ballooning supply in 2017. The organization also forecast demand for crude from OPEC to average 32.48 million barrels per day next year, down 530,000 bpd from its previous target.
West Texas Intermediate crude oil closed up 0.9% to $46.29 a barrel on Monday.
"Oil prices joined [equities'] recovery despite an OPEC monthly report highlighting the resilience of non-OPEC production, suggesting ongoing hopes that a deal to limit OPEC production was at least still technically possible," Tim Evans, energy futures analyst at Citi, wrote in a report. "However, at the same time we note that a deal has yet to be reached, and some of the proposals in circulation such as a 'pick-your-own-quota' option may not be effective in rebalancing the market."
In deal news Monday, HP (HPQ - Get Report) said it would pay $1.05 billion for Samsung Electronics' (SSNLF) printer unit in its largest ever printing-related purchase. HP, which split off from software company HPE Enterprise (HPE - Get Report) last fall, said the acquisition of Samsung Electronics' technology and its 6,500 or so patents reflects a push to "disrupt" the outmoded copier segment by replacing devices with more advanced multifunction printer, or MFP, technology. HP shares added 1.2%.
Canadian fertilizer giants Agrium (AGU) and Potash Corp. of Saskatchewan (POT) agreed to merge in an all-share deal that would create a company with a market value of about $28 billion. Postash shareholders will hold 52% of the new company.
Horizon Pharma (HZNP - Get Report) agreed to purchase Raptor Pharmaceutical (RPTP) in an all-cash deal worth around $800 million. The offer of $9 a share values Raptor at a 21% premium to its Friday close. Horizon CEO Timothy Walbert said the deal broadens the company's ability to treat rare diseases.