US stocks jump on Fed rate cut bets but lose ground on the week

[NEW YORK] Wall Street stocks closed sharply higher on Friday (Nov 21) as rising expectations of a December interest rate cut by the Federal Reserve offset concerns over lofty tech valuations. A broad rally started gathering momentum by late morning, pushing all three major US stock indexes to substantial gains on the day.

Benchmark Treasury yields fell, the dollar was steady and bitcoin pared its losses. The volatile session caps a tumultuous week in which US and world stocks lost ground from last Friday’s close.

The Fed, deprived of official US economic data during the recently ended government shutdown, at last got a fresh glimpse of the labour market on Thursday, which showed the unemployment rate unexpectedly ticking higher.

As a result, financial markets are pricing in an increased likelihood of a third and final rate cut this year from the Fed. CME’s FedWatch tool sets the odds at 73.3 per cent, a significant bump from 39.1 per cent on Thursday. Messaging from monetary policymakers is mixed.

New York Fed President John Williams said the Fed could still cut rates in the near term, while Dallas Fed President Lorie Logan called for them to be left on hold while the central bank assesses the effect of current rates on the economy.

“New York Fed President Williams’ comments seem to have shifted the perception on that December rate cut potential,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.

“Part of the reason for the move today is that Williams was seen as one of the hawkish leans, so the market could perceive it representing someone stepping over the line towards the dovish point of view.”

“Other than that, yesterday was a pretty broad and rough selling day into the close, so (the market was) primed for some bounce,” Mayfield added.

Solid earnings from artificial intelligence vanguards, notably chipmaker Nvidia, momentarily eased concerns that AI-related tech stocks, which powered the stock market’s rally in recent months, are overpriced and could be due for a correction.

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The third-quarter earnings season is nearly wrapping up, with more than 94 per cent of the companies in the S&P 500 having reported. Of those, 83 per cent beat earnings estimates, according to LSEG data.

The Dow Jones Industrial Average rose 493.30 points, or 1.08 per cent, to 46,245.56, the S&P 500 rose 64.20 points, or 0.98 per cent, to 6,602.96 and the Nasdaq Composite rose 195.04 points, or 0.88 per cent, to 22,273.08.

European stocks ended lower, logging a weekly decline due to worries over stretched tech valuations, while defence shares slid on signs of progress toward ending Russia’s war on Ukraine. MSCI’s gauge of stocks across the globe rose 2.73 points, or 0.28 per cent, to 971.26. The pan-European Stoxx 600 index fell 0.33 per cent, while Europe’s broad FTSEurofirst 300 index fell 7.27 points, or 0.32 per cent.

Emerging market stocks fell 36.17 points, or 2.64 per cent, to 1,335.37. MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower by 2.67 per cent, at 685.82, while Japan’s Nikkei fell 1,198.06 points, or 2.40 per cent, to 48,625.88.

The dollar looked set to register a weekly gain but weakened against the yen, as Japanese officials stepped up their verbal intervention to stem the yen’s decline. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.01 per cent to 100.15, with the euro down 0.09 per cent at US$1.1517. Against the Japanese yen, the dollar weakened 0.68 per cent to 156.41.

Cryptocurrencies sank to multi-month lows amid a broader flight from riskier assets. Bitcoin fell 2.93 per cent to US$84,661.00. Ethereum declined 4.64 per cent to US$2,744.76. US Treasury yields dipped as Fed rate cut bets rose. The yield on benchmark US 10-year notes fell 4.1 basis points to 4.063 per cent, from 4.104 per cent late on Thursday. The 30-year bond yield fell 1.7 basis points to 4.715 per cent from 4.732 per cent late on Thursday. The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 5.1 basis points to 3.508 per cent, from 3.558 per cent late on Thursday.

Oil prices extended their decline for a third session, touching a one-month low as the US pushed for a Russia-Ukraine peace deal. US crude fell 1.59 per cent to settle at US$58.06 per barrel, while Brent settled at US$62.56 per barrel, down 1.29 per cent on the day.

Spot gold fell 0.29 per cent to US$4,065.29 an ounce. US gold futures fell 0.05 per cent to US$4,054.30 an ounce. REUTERS