(Bloomberg) — Stocks rose and bond yields fell as both the labor and services markets showed signs of cooling and the Federal Reserve increasingly appeared to be done raising interest rates. At the same time, bets on interest rate cuts intensified in June.
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Top stocks piled up across Wall Street on Friday, with the S&P 500 up nearly 1%, marking its best week in 2023. The market’s “fear gauge” VIX index suffered its biggest weekly decline since December 2021. US Treasuries rebounded. The two-year bond yield fell 15 basis points to 4.84%. The dollar has fallen the most since July. Oil prices fell below $81 as the risk premium from the Israel-Hamas war disappeared.
Read: Wall Street bears drive biggest inter-asset rally of the year
Looking at the current state of Fed swaps, traders see only a 16% chance of another rate hike before January, fully pricing in a rate cut by June rather than July. The U.S. services sector expanded at its weakest pace in five months, job growth slowed and the unemployment rate rose to 3.9%. Nonfarm payrolls increased by 150,000 last month, following a downward revision of 297,000 in September. Wage growth has slowed.
“The US economy showed its first cracks, but the market decided not to care,” said Florian Hierpo of Lombard Odier Asset Management in Switzerland. “So far, everything is going well, and the ‘bulls are cool’ line seems liberating to a significant number of investors, both on the equity side and the fixed income side.”
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For George Mateyo, chief investment officer at Key Private Bank, the latest developments only confirm the Fed’s decision to pause this week.
“These also emphasize the ‘not too hot, not too cold’ backdrop, which should be welcome news for investors who until recently were worried about things overheating,” he added.
Russell Price, chief economist at Ameriprise, said the slowing pace of net employment in October should give Fed officials room to maintain a pause in interest rate policy while they wait for further developments in inflation. For now, the Fed said it believes it is done raising interest rates.
The U.S. Federal Open Market Committee voted Wednesday to keep interest rates unchanged for the second consecutive meeting at a 22-year high. Fed Chairman Jerome Powell said it was an open question whether the central bank would need to raise rates again and that it was “proceeding cautiously” to raise rates, but that assessment meant he was reluctant to raise rates in the short term. It often suggests something.
fedospeak
Atlanta Fed President Rafael Bostic told Bloomberg TV that policymakers have time to monitor developments in the economy and be patient about developments in interest rates.
Separately, Neil Kashkari in Minneapolis said the slowdown in hiring is welcome news for the central bank, but it doesn’t want to overreact to just one month’s worth of data. Richmond Fed President Thomas Barkin echoed similar sentiments on the latest jobs report, saying his own view on whether to raise rates again would depend on the inflation report.
“While the Federal Reserve did not realistically expect an improvement in today’s jobs report, it is looking forward to some positive developments in the coming months before declaring victory,” said Craig Erlam, senior market analyst. It will need to be one of the most important economic reports.” Oanda.
better entry point
The S&P 500 index rose sharply this week as there was growing belief that the Fed’s aggressive rate hike regime may be over. And Bank of America’s Michael Hartnett says technical factors are no longer a deterrent to year-end stock gains.
The bank’s internal sentiment indicator, the Bull & Bear Index, has been on the contrarian side for three consecutive weeks, with the stock market’s breadth (referring to the number of rising stocks) being weak and large amounts of money flowing out from high-yield stocks and emerging stocks. It is giving a buy signal. Regarding market bonds, the strategist wrote in a note. The indicator has fallen to 1.4, below the level of 2 that BofA says suggests a buy signal.
Meanwhile, BofA’s Savita Subramanian said the S&P 500 index now offers a better entry point compared to July’s highs, adding, “Positive surprises in beta stock gains are likely.” However, he noted that clients are “increasingly asking whether they should wait for the S&P 500 to rise.” Stock purchases increased.
“Extreme fear can be just as costly as greed,” she wrote.
The stock market has rebounded strongly this week, but beneath the surface of the euphoria lurks concerns about the profit outlook for American companies.
Among the companies that have announced their outlook for next quarter and beyond this earnings season, an increasing number of companies are presenting forecasts that are lower than analysts’ expectations. The forward guidance measure, which compares company expectations to Wall Street consensus, has declined only once since 2019, according to data compiled by Bloomberg Intelligence.
“Manic Dispersion”
According to Janney Montgomery’s Dan Wantrowski, there is a ringing bullish tone in both the stock and bond markets, which means that investor sentiment remains (at best) neutral and (at worst) rapidly rising. This should be a clear signal that Scott is reversing in an extremely bullish direction.
“Such dispersion in the outlook suggests that the market may take longer to find its footing and could see further declines in the coming months,” he said. “Our research indicates more volatility ahead.”
Meanwhile, as inflation subsides and central banks end policy tightening, bonds remain attractive and are expected to outperform cash next year, according to Goldman Sachs Group Inc.’s head of asset allocation strategy.
“Bonds are starting to offer an attractive entry point,” said Christian Muller-Grissmann. “Central banks are nearing or already nearing the end of their rate hike cycles. We also recognize pressure on the economy from rising long-term bond yields. These factors are driving investors to buy bonds. You’ll have a better starting point.”
Company highlights:
Apple, which is trying to reverse several consecutive quarters of sales declines, reported its lowest sales in Greater China since mid-2022.
The United States supported JetBlue Airways’ efforts to fight its expulsion from Amsterdam’s Schiphol Airport.
Carvana defied challenges from rising interest rates and high inflation in the third quarter to beat Wall Street expectations.
Fortinet has lowered its full-year outlook for the second time, saying it expects fourth-quarter revenue and revenue to be lower than expected.
Coinbase Global Inc., the largest U.S. cryptocurrency exchange, posted better-than-expected revenue as it looks to weather an industry-wide downturn in trading activity.
Online sportsbook DraftKings reported third-quarter revenue and monthly unique player numbers that exceeded consensus expectations.
Despite forecasting growth and reporting better-than-expected profits, Booking Holdings said the Israel-Hamas war had reduced travel demand.
Jack Dorsey’s payments giant Block has again raised its adjusted profit forecast for this year, citing growing customer interest in its popular cash app.
Warren Buffett’s Berkshire Hathaway aims to show that continued high interest rates are helping conglomerates rather than hindering them.
The main movements in the market are:
stock
As of 4 p.m. New York time, the S&P 500 was up 0.9%.
Nasdaq 100 rose 1.2%
The Dow Jones Industrial Average rose 0.7%.
MSCI World Index rose 1.2%
currency
The Bloomberg Dollar Spot Index fell 0.8%.
The euro rose 1% to $1.0727.
Sterling rose 1.4% to $1.2374.
The Japanese yen rose 0.7% to 149.47 yen to the dollar.
cryptocurrency
Bitcoin fell 1.1% to $34,536.41.
Ether rose 0.7% to $1,817.63
bond
The 10-year Treasury yield fell 9 basis points to 4.57%.
Germany’s 10-year bond yield fell 7 basis points to 2.65%.
UK 10-year bond yields fell 9 basis points to 4.29%.
merchandise
West Texas Intermediate crude oil fell 1.8% to $80.95 a barrel.
Spot gold rose 0.3% to $1,992.30 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Ye Xie, Michael Mackenzie, Christopher DeReza, and Michael Tobin.
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