U.S. equities reversed their direction on Friday, as the Dow Jones Industrial Average climbed 160 points to reach a fresh 22-month high. Federal Reserve Chairman Jerome Powell's statement, emphasizing that it was premature to discuss rate cuts, played a pivotal role in the market dynamics.
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On the preceding day, the Dow Jones Industrial Average witnessed an impressive surge of 520 points, or 1.47%, concluding at 35,951—its highest closing level in 22 months. Notably, all three major indexes achieved substantial gains throughout November, with the S&P 500 rising by 8.9% and the Nasdaq recording a remarkable 10.7% increase. These figures represent the most significant monthly advances for both indexes since July 2022, as indicated by Dow Jones data.
Market drivers include the Dow surpassing the 36,000 mark for the first time since January 13, 2022, according to Dow Jones Market Data. The Dow is poised for its fifth consecutive week of gains, marking its lengthiest streak of weekly gains since November 5, 2021, as per FactSet data.
Federal Reserve Chairman Powell's remarks took center stage during Friday's trading session. Powell cautioned against premature assumptions regarding rate cuts in the early part of the coming year, asserting that it would be premature to confidently claim a sufficiently restrictive policy stance had been achieved. Powell emphasized the Fed's readiness to tighten policy further if deemed appropriate.
Contrary to Powell's stance on rates, Treasury yields continued to decline, while the S&P 500 exhibited an upward swing. Analysts suggested that investors are closely monitoring the outflow of liquidity from the Fed's reverse-repo facility, contributing additional bullish momentum to both equity and bond markets.
A key focus was the release of a business conditions indicator for American factories, revealing the 13th consecutive negative monthly reading for November, indicating limited improvement in the industrial sector.
The 10-year Treasury yield (BX:TMUBMUSD10Y) retreated to 4.26% on Friday, down from a 16-year high of 5% in October. Bond yields, inversely related to bond prices, continued to trend downward despite Powell's strong stance on rates.
Victor Cossel, a senior analyst at Seaport Research Partners, highlighted the offsetting impact of liquidity and reactions to economic data against Powell's statements.
Reflecting on the eventful November, characterized by significant rallies in both stocks and bonds, market participants witnessed a broad-based stock rally. Ten out of the S&P 500's 11 sectors concluded the month in positive territory, with only the energy sector facing headwinds due to a drop in crude-oil prices.
Anticipations of potential Fed interest-rate cuts in May or even March contributed to the market rally. Additionally, Treasury Secretary Janet Yellen's announcement of issuing fewer long-dated bonds than anticipated provided additional support to both stocks and bonds.
Encouraging inflation data earlier in the week, coupled with remarks from Fed Gov. Christopher Waller, further fueled expectations of rate cuts in the upcoming months.
Notable after-hours earnings reports on Thursday from the technology sector included companies such as Dell Technologies (DELL), Marvell Technology (MRVL), Elastic (ESTC), Samsara (IOT), and UiPath (PATH).
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