Shares climb, dollar falls with Fed comments inspiring dovish bets

While all three indexes were briefly in the red this morning, that quickly reversed with a shot straight up for the rest of the session, the Dow again with triple-digit gains, today closing up 294, bringing in the fifth consecutive week of gains in all indexes, the longest streak in two years. This was all despite Powell’s best efforts to convince investors not to bet too heavily on rate cuts as the Fed would continue to move “carefully” in rates towards the 2% inflation goal. But Wall Street still chooses to believe that cuts are coming next year and placed their bets accordingly.  

Falling inflation was further confirmed by today’s PMI report with 13 consecutive months of contraction, the longest stretch in twenty years. Treasury yields continuing to fall and Powell’s “lack of pushing back on Waller [on his earlier remarks on coming cuts] leads the market to believe that Powell’s okay with where equities are going.” This added to the optimism and boosted volume once again considerably above average to 12.5 billion. 

Shares climb, dollar falls with Fed comments inspiring dovish bets

By Sinéad Carew and Amanda Cooper

Fri December 1, 2023 4:39 PM

DJ: 35,950.89  +520.47        NAS: 14,226.22  -32.27         S&P: 4,567.80  +17.22     11/30

DJ: 36,245.50  +294.61        NAS: 14,305.03  +78.81        S&P: 4,594.63  +26.83     12/1

NEW YORK/LONDON, Dec 1 (Reuters) - MSCI's global stock index rose on Friday and marked its fifth straight weekly gain while U.S. Treasury yields and the dollar fell on the day as investors were encouraged by Federal Reserve Chair Jerome Powell's vow to move "carefully" on interest rates.  Treasury yields fell after Powell said the risks of hiking interest rates too much and slowing the economy more than necessary have become "more balanced" with the risks of not hiking enough to control inflation.

"Powell is trying to be balanced, trying to make sure the market doesn't get ahead of itself. He doesn't want the market or traders to speculate on rate decreases," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.  "He's all about the data, and the core inflation data over the last six months has been good. But he reiterates the objective is still 2% and he doesn't want all the work the Fed has done to bring inflation down to suddenly be reversed."  While Powell tried to "subtly convince markets" of the Fed's commitment to keep rates high, Karl Schamotta, chief market strategist at Corpay in Toronto doubted this would "deter investors betting on a dramatic pivot in early 2024."

This view appeared to be confirmed by a risk-on mood on Wall Street with all three of its major averages closing higher and the S&P 500 registering its highest closing level since March 2022.  Investor optimism about rate cuts surged earlier this week after Fed Governor Christopher Waller - widely seen as a hawkish policymaker - flagged the possibility of lower interest rates in coming months if inflation continued to ease.  "The lack of pushing back on Waller leads the market to conclude that Powell's okay with where equities and long-term treasury yields have been going recently," said Josh Jamner, investment strategy analyst at Clearbridge Investments, New York. 

The Dow Jones Industrial Average (.DJI) rose 294.61 points, or 0.82%, to 36,245.5, the S&P 500 (.SPX) gained 26.83 points, or 0.59%, to 4,594.63 and the Nasdaq Composite (.IXIC) added 78.81 points, or 0.55%, to 14,305.03.  MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 0.60%. For the week, the index was on track for a gain of 0.9% marking its fifth consecutive week of gains, which is its longest winning streak since the five week stretch ended Nov. 5, 2021. 

Earlier on Friday, the Institute for Supply Management (ISM) said its manufacturing PMI was unchanged at 46.7 last month. It was the 13th consecutive month the PMI stayed below 50, indicating a contraction in manufacturing and the longest such stretch since the period from August 2000 to January 2002.

Mona Mahajan, senior investment strategist at Edward Jones said Friday's data supported the idea of lower inflation, a gradually cooling economy and the Fed staying on the sidelines.

In Treasuries, the benchmark 10-year notes were down 13.7 basis points to 4.213%, from 4.35% late on Thursday. The 30-year bond was last down 11.6 basis points to yield 4.3952% while the 2-year note was last was down 16 basis points to yield 4.5549%, from 4.715%.

Per the CBOE, volume was again considerably above average at 12.5 billion.