U.S. Stocks Extend Rally On Optimism About Slower Rate Hikes

Following the remarkable rally seen over the course of Thursday’s session, stock saw further upside during trading on Friday.

With the extended upward move, the Dow reached a nearly three-month closing high, while the Nasdaq and the S&P 500 jumped to their best closing levels in almost two months.

The tech-heavy Nasdaq surged 209.18 points or 1.9 percent to 11,323.33 and the S&P 500 shot up 36.56 points or 0.9 percent to 3,992.93.

Meanwhile, the Dow underperformed due to steep losses by UnitedHealth (UNH) and Merck (MRK) but still crept up 32.49 points or 0.1 percent to 33,747.86.

For the week, the Nasdaq skyrocketed by 8.1 percent, the S&P 500 soared by 5.9 percent and the Dow jumped 4.2 percent.

The extended rally on Wall Street came as stocks continued to benefit from optimism about the Federal Reserve slowing the pace of interest rate hikes following yesterday’s tamer than expected inflation data.

On the heels of the inflation data, CME Group’s FedWatch Tool is currently indicating an 80.6 percent chance the Fed will raise rates by 50 basis points next month compared to the recent 75 basis point rate hikes.

Buying interest was also generated in reaction to news that China is loosening some Covid restrictions, reducing quarantine times for inbound travelers.

The loosening of curbs came a day after President Xi Jinping led his new Politburo Standing Committee in a meeting on Covid.

Meanwhile, traders largely shrugged off a report from the University of Michigan showing U.S. consumer sentiment has pulled back much more than expected in November after seeing modest improvements in recent months.

The University of Michigan said its consumer sentiment index slumped to 54.7 in November after inching up 59.9 in October. Economists had expected the index to edge down to 59.5.

The report also showed a continued rebound in inflation expectations following the decreases in August and September.

One-year inflation expectations crept up to 5.1 percent in November from 5.0 percent in October, while five-year inflation expectations inched up to 3.0 percent from 2.9 percent.

Sector News

Steel stocks showed a substantial move to the upside on the news of China easing Covid restrictions, driving the NYSE Arca Steel Index up by 4.3 percent to a five-month closing high.

A sharp increase by the price of crude oil also contributed to significant strength among energy stocks, as crude for December delivery surged $2.49 to $88.96 a barrel.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 3.8 percent and the NYSE Arca Oil Index shot up by 2.9 percent.

Computer hardware and semiconductor stocks also saw considerable strength on the day, contributing to the strong upward move by the tech-heavy Nasdaq.

Transportation, retail and chemical stocks also showed notable moves to the downside, while weakness was visible among pharmaceutical and utilities stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved sharply higher during trading on Friday. Japan’s Nikkei 225 Index spiked by 3.0 percent, while Hong Kong’s Hang Seng Index soared by 7.7 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.’s FTSE 100 Index slid by 0.8 percent, the German DAX Index and the French CAC 40 Index both climbed by 0.6 percent.

The bond market was closed in observance of Veterans Day.

Looking Ahead

The latest batch of U.S. economic data may impact trading next week, including reports on producer prices, import and export prices, retail sales, industrial production, housing starts and existing home sales.

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