(Bloomberg) — Stocks rose and bond yields fell, with traders looking past the Federal Reserve’s efforts to downplay the market’s dovish bid while sifting through a key reading on consumer sentiment.
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The S&P 500 snapped back, following a slide triggered by a Treasury selloff and Jerome Powell’s remarks that officials won’t hesitate to tighten, if needed. While that’s roughly the message that several Fed speakers have been sending over the past few days, it served as a catalyst for a pullback in markets after a solid November rally. Two-year yields dropped below 5%, while the dollar halted a four-day advance.
“For the market to sustainably rally from here it still needs what it hasn’t received: Calm in the Treasury market,” said Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. “Short, sharp declines are no more beneficial for stocks than short, sharp rises.”
US consumers’ long-term inflation expectations increased in early November to the highest since 2011, while high interest rates and concerns about the economic outlook weighed on sentiment. The combination of higher inflation expectations and concerns about the durability of consumer spending highlight a difficult challenge for Federal Reserve policymakers as they debate further interest-rate hikes.
Fed officials are trying to determine if they should keep raising rates after electing to leave the central bank’s benchmark unchanged at their last two policy meetings. It’s currently in a range of 5.25% to 5.5%, the highest level in 22 years. Fed Bank of Atlanta President Raphael Bostic said policymakers can return US inflation to their goal without the need to hike further.
The caution that pervaded equity markets in the past three months has now switched to “year-end greed” on expectations of a decline in US bond yields, according to Bank of America Corp.’s Michael Hartnett.
That optimism has been reflected in fund flows, with global stocks recording inflows of $8.8 billion in the week through Nov. 8, according to the note citing EPFR Global data. Still, cash remains the asset class of choice, Hartnett said. About $77.7 billion went into money market funds in the week, setting them up for record annual inflows of $1.4 trillion.
Elsewhere, the euro edged higher after European Central Bank President Christine Lagarde said that keeping the deposit rate at 4% should be enough to tame inflation, but officials will consider raising borrowing costs again if they need to.
Bitcoin hovered near $37,000 — the highest price in 18 months. Oil recovered, but was still headed for a third straight weekly drop on growing concerns over global demand and the unwinding of the war-risk premium. Gold was on track for its second weekly decline.
Corporate Highlights:
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Trade Desk Inc., a digital advertising platform, gave a weak revenue forecast for the current quarter, sending up a warning flare about the health of the ad market.
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Plug Power Inc., a hydrogen and fuel-cell maker, raised a going concern warning on the heels of a weak third quarter.
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Three Las Vegas casino companies have reached labor deals with the city’s most powerful hospitality workers union, ending the threat of a strike in one of the nation’s hottest tourist destinations.
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Country Garden Holdings Co. posted its biggest sales drop in at least six years as customers’ concerns about its ability to complete projects threaten to exacerbate a cash crunch at the defaulted Chinese developer.
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.3% as of 10:01 a.m. New York time
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The Nasdaq 100 rose 0.7%
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The Dow Jones Industrial Average rose 0.2%
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The Stoxx Europe 600 fell 1.2%
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The MSCI World index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0669
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The British pound fell 0.2% to $1.2195
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The Japanese yen fell 0.1% to 151.52 per dollar
Cryptocurrencies
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Bitcoin rose 1.6% to $37,108
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Ether rose 1.2% to $2,083.8
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.60%
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Germany’s 10-year yield advanced seven basis points to 2.71%
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Britain’s 10-year yield advanced six basis points to 4.33%
Commodities
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West Texas Intermediate crude rose 1.6% to $76.94 a barrel
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Spot gold fell 0.8% to $1,942.59 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jan-Patrick Barnert.
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