(Bloomberg) — Stocks rallied across the board as Jerome Powell signaled a slowing of the pace of tightening in early December, while signaling more hikes to fight inflation. Bond yields fell against the dollar.
Amid all the optimism, the S&P 500 hit a two-month high, snapping its longest monthly winning streak since August 2021. The stock also breached its 200-day moving average: a threshold seen by some analysts as indicating further gains. The Nasdaq 100 climbed as much as 4.5% and the Dow Jones Industrial Average rose 20% from its September low — meeting the definition of a bull market.
Bond traders are raising their expectations for how high they think the Fed will need to lift its benchmark, with volatility markets suggesting the key overnight rate could rise below 5%.
Powell’s comments likely led to Fed expectations for a 50 basis point hike in December, following four straight 75 basis point moves. Although he also hinted that rates may reach a “slightly higher” level than officials estimated in September.
Powell just said that the market is always thinking. But before you get too excited, remember that this is a shift, not a pivot. Powell was clear that rates could remain high for some time.
At this point, it may be time to start planting seeds for the next lake market, but try not to get carried away. High-rated environments belong to quality companies that prove they can execute, so keep that in mind when you’re back in risky markets.
- Krishna Guha at Evercore ISI:
Most importantly for risk assets, Powell’s comments acknowledged the return of some bilateral risk management. That’s a big deal for equities and means a big move in stocks is justified relative to the rate market.
The caveat is that Powell’s voice can be unstable from one event to another, and he may judge in retrospect that he was a little too risky, given the risks associated with prematurely exiting financial conditions.
- Jeffrey Roach at LPL Financial:
Most of President Powell’s comments were positive and predictable. All in all, this conversation will soon be significant for the markets.
- Neil Dutta in Renaissance Macro Research:
Powell is giving the Fed an off-ramp for 75 basis point moves, but I don’t think you can rule out anything else. There is a reasonably strong chance that the Fed will raise 50 basis points or 25 basis points.
- Roberto Bagnato at Immobiliare Quadronno Srl:
This rally is absurd: Powell said they will slow, but they will raise rates higher than previously predicted. The market wants to hear only the first part of Powell’s statement.
Read: Fed Says Economy Got A Little Big as Higher Rates Weigh on Outlook
Traders also looked for a slew of economic reports, with key measures of US activity painting a mixed third-quarter picture. Job openings fell in October – a hopeful sign for the Fed that it is trying to curb demand.
The numbers are ahead of Friday’s jobs report, where employers are now expected to have added 200,000 workers to payrolls in November. Economists expect the unemployment rate to remain at 3.7% and moderate hourly earnings.
This week’s main events:
- S&P Global PMIs, Thursday
- US construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday
- BOJ’s Haruhiko Kuroda, speaking Thursday
- US unemployment, nonfarm payrolls, Friday
- ECB’s Christine Lagarde speaks on Friday
Some key movements in the markets:
- The S&P 500 was up 3.1% as of 4 p.m. New York time
- The Nasdaq rose 100% by 4.6%
- The Dow Jones Industrial Average rose 2.2%
- The MSCI World Index increased by 2.5 percent
- The Bloomberg Dollar Index fell 0.7%.
- Euro increased by 0.8 percent and reached 1.0408 dollars
- The British pound rose 0.9% to $1.2056
- The Japanese yen increased by 0.4 percent and reached 138.05 dollars
- Bitcoin rose 3.8 percent to $17,083.33
- Ether rose 6.2% to $1,294.71
- The 10-year Treasury yield fell 11 basis points to 3.63%.
- Germany’s 10-year yield was little changed at 1.93%.
- Britain’s 10-year yield advanced six basis points to 3.16%.
- West Texas Intermediate crude rose 3.1 percent to $80.62 a barrel
- The price of gold increased by 1.2 percent and reached 1784.10 dollars
This story was produced with the help of Bloomberg Automation.
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