Stocks defy Fed pushback in long rally
A rally in big tech drove stocks to their longest winning streak in two years, with investors shrugging off the latest attempts from Federal Reserve speakers to tone down Wall Street’s dovish bid.
After a series of twists and turns in the first hour of trading, the S&P 500 rose for a seventh straight day and got closer to the key 4,400 mark.
The Nasdaq 100 climbed about 1%, with Microsoft Corp. hitting an all-time high and cloud-software shares soaring. The dollar extended its rebound.
Bonds climbed after Bank of England Chief Economist Huw Pill hinted rate cuts may be on the table in 2024. Oil sank over 4% to settle near $77 a barrel.
Global equities are poised for a double-digit rally in 2024 if the Fed pivots its monetary policy and allows the economy to avoid a recession, according to HSBC Holdings strategists.
The S&P 500 rose in price an average 13% in the nine months after the last rate hike in the past three decades, according to Sam Stovall, chief investment strategist at CFRA and author of “The Seven Rules of Wall Street.”
“The recent move in stocks is consistent with our view that investor pessimism had been overdone,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.
“While we continue to see near-term headwinds for equities, we believe conditions are in place for positive total returns over the next six to 12 months.”
The rally in equities came on the heels of a growing list of macroeconomic concerns — with the recovery leaving some investors wondering whether the markets will continue to climb a “wall of worry,” said Fawad Razaqzada at City Index and Forex.com.
Lauren Goodwin at New York Life Investments, says the Fed may be done with rate hikes, but she’s concerned that the relief we are seeing in the markets is only a “stop en route to recession.”
Equities advanced even after some central bank officials emphasized that bringing inflation fully down to the 2% goal is their main focus.
Fed Bank of Minneapolis President Neel Kashkari said policymakers have yet to win the fight against inflation and they will consider more tightening if needed.
His Chicago counterpart Austan Goolsbee said officials don’t want to “pre-commit” decisions on rates.
Fed Gov. Michelle Bowman said she continues to think the central bank will need to raise interest rates higher to contain inflation — but added a surge in Treasury yields since September has led to tighter financial conditions.
A jump in U.S. yields over recent weeks amounts to nothing less than an “earthquake” for the bond market, according Gov. Christopher Waller.
“We’ll be especially attentive to policymakers’ thoughts around the recent shifts in financial conditions and what a nearly 50 basis-point drop in 10year yields and a strong rebound in equity valuations could mean for the path of monetary policy,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
Investors flocked to zero-coupon bonds during October’s Treasury rout in a bet that yields would decline from multiyear highs.
About $10.3 billion of zerocoupon Treasuries were created in October, the second-highest monthly total on record, data released by the Treasury Department late Monday show.
The $12.2 billion generated in October 2018 — also following a surge in yields — was the most on record.