Stocks Hold Gains After Big Rally on Fed Rates: Markets Wrap
Wall Street steadied after a blockbuster rally, with traders betting the Federal Reserve will start cutting rates next year — while expecting policymakers to lean against the recent easing in financial conditions.
A raft of Fed officials — including Chair Jerome Powell — is slated to speak over the next few days. Traders are pricing in more than 100 basis points of Fed rate cuts by the end of next year from an expected peak rate of 5.37%, swaps data show. They have brought forward their predictions for the first cut to June from July following the November Fed policy decision and the jobs report.
“Fed is DONE DONE DONE,” wrote Andrew Brenner, head of international fixed income at NatAlliance Securities. “June is a done deal for a cut, while the markets are building in four rate cuts for next year — expect the Fed to push back on that, if nothing else for optionality. Powell will try to claw back some of the easing of financial conditions.”
The S&P 500’s best week in a year was just a bear-market rally, according to Morgan Stanley’s top-ranked strategist. Technical and fundamental support is missing, wrote Michael Wilson in a research note Monday. Citing a gloomy earnings outlook, weaker macro data and deteriorating analyst views, “we find it difficult to get more excited about a year-end rally,” he added.
Any year-end rally in stocks could prove short-lived because equities don’t fully reflect the outlook for rates remaining higher for longer, according to Jean Boivin, who heads the research arm at BlackRock Inc.
Treasury yields have climbed to multi-year highs as investors prepare for an extended period of tightened Fed monetary policy, a pattern that history shows tends to have a negative correlation with stocks.
There are around 10 issuers looking to sell US investment-grade primary bonds on Monday as syndicate desks expect to be busy all week, according to an informal survey of debt underwriters, who declined to name the firms. With more companies emerging out of earnings blackout periods and funding costs lower compared to the past few weeks, most issuers are expected to move forward with their planned bond sales.
- Tesla Inc. will produce a new model that will cost €25,000 ($26,863) at its factory near Berlin, Reuters reported, as competition intensifies to produce more affordable electric vehicles for the European market.
- Tyson Foods Inc., the largest US meat producer, is recalling almost 30,000 pounds (13 metric tons) of chicken nugget products aimed at children due to possible contamination with metal pieces.
- Berkshire Hathaway Inc.’s cash pile scaled a fresh record at $157.2 billion, bolstered both by elevated interest rates and a dearth of meaningful deals where billionaire investor Warren Buffett could put his money to work.
- Dish Network Corp. reported revenue for the third quarter that missed the average analyst estimate and said its Chief Executive Officer Erik Carlson will resign.
- Bumble Inc. Chief Executive Officer Whitney Wolfe Herd will step down from the company she founded nearly 10 years ago.
- FedEx Corp. is encouraging pilots to seek work flying for a unit of American Airlines Group as the pandemic-era surge in demand for air cargo slows.
- Ryanair Holdings Plc will pay out a dividend of €400 million ($430 million) and plans to hand over about a quarter of annual profit to shareholders as Europe’s biggest discount airline benefits from growing traffic.
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Key events this week:
- Australia rate decision, Tuesday
- China trade, forex reserves, Tuesday
- Eurozone PPI, Tuesday
- US trade, Tuesday
- UBS earnings, Tuesday
- Kansas City Fed President Jeff Schmid and his Dallas counterpart Lorie Logan speak, Tuesday
- Eurozone retail sales, Wednesday
- Germany CPI, Wednesday
- BOE Governor Andrew Bailey speaks, Wednesday
- US wholesale inventories, Wednesday
- New York Fed President John Williams speaks, Wednesday
- Bank of Japan issues October summary of opinions, Thursday
- BOE chief economist Huw Pill speaks on the economy, Thursday
- US initial jobless claims, Thursday
- Fed Chair Jerome Powell participates in panel on monetary policy challenges at the IMF’s annual research conference in Washington, Thursday
- Atlanta Fed President Raphael Bostic and his Richmond counterpart Tom Barkin speak, Thursday
- UK industrial production, GDP, Friday
- ECB President Christine Lagarde participates in fireside chat, Friday
- US University of Michigan consumer sentiment, Friday
- Dallas Fed President Lorie Logan and her Atlanta counterpart Raphael Bostic speak, Friday
Some of the main moves in markets:
- The S&P 500 rose 0.2% as of 10 a.m. New York time
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 0.2%
- The MSCI World index rose 0.4%
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0739
- The British pound was little changed at $1.2390
- The Japanese yen fell 0.2% to 149.74 per dollar
- Bitcoin rose 1.6% to $35,220.38
- Ether rose 2.3% to $1,913.53
- The yield on 10-year Treasuries advanced seven basis points to 4.65%
- Germany’s 10-year yield advanced nine basis points to 2.74%
- Britain’s 10-year yield advanced eight basis points to 4.37%
- West Texas Intermediate crude rose 1.9% to $82.01 a barrel
- Spot gold fell 0.4% to $1,985.02 an ounce
This story was produced with the assistance of Bloomberg Automation.