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Stocks, Bonds Extend Post-fed Meeting Rally

November 3, 2023
minute read

On Thursday, there was a broad increase in stock prices, marking the second consecutive day of gains following Federal Reserve Chair Jerome Powell's indication that the central bank might not raise interest rates further at the moment.

The S&P 500 saw a significant rise of 1.9%, the largest since April. The Dow Jones Industrial Average also increased by over 560 points, equivalent to 1.7%, while the Nasdaq Composite recorded a 1.8% gain.

All 11 sectors of the S&P 500 closed with higher values, with energy, utilities, and consumer-discretionary stocks leading the way. The real-estate sector, which is sensitive to interest rates, experienced the most substantial increase, rising by 3.1%. This was accompanied by a slight decrease in mortgage rates, the first in almost two months.

Bond yields retreated, and the yield on the 10-year Treasury note dropped from 4.79% on Wednesday to 4.668% on Thursday. Lower yields are associated with higher bond prices.

Traders seemed relieved as yields had recently approached 5%, the highest levels since 2007. Powell's comments in his news conference on Wednesday, emphasizing the decline in inflation, also provided reassurance.

According to David Kelly, the chief global strategist at J.P. Morgan Asset Management, "Yesterday’s meeting makes me much more convinced that they’re done hiking." He perceived the meeting as more dovish than expected.

Higher Treasury yields imply increased borrowing costs for consumers and businesses, which can reduce enthusiasm for stocks by making safer bonds more attractive in comparison. As yields decreased over two days, riskier assets gained favor. For instance, Cathie Wood's ARK Innovation exchange-traded fund, which primarily invests in technology companies sensitive to interest rates, gained over 8% on Thursday.

Traders will be closely watching the October payrolls report on Friday. Positive job market indicators could complicate the Fed's interest-rate plans and push yields higher. Powell did not rule out the possibility of another rate increase at Wednesday's news conference.

In October, the Labor Department reported that the number of Americans seeking unemployment benefits, a proxy for layoffs, remained at historically low levels.

Earnings season continued on Thursday, with several companies' shares rising after reporting strong results. Out of the more than 375 S&P 500 companies that have reported earnings so far, approximately 80% exceeded analyst expectations, a notable increase from the typical quarter's 67%.

Starbucks was one of the top performers in the S&P 500, with a 9.5% increase attributed to increased customer spending and orders. Roku, a television streaming platform, saw its shares surge by 31% due to better-than-expected revenue and optimistic sales forecasts.

Conversely, Moderna experienced a decline in sales, primarily due to lower demand for its Covid-19 vaccine.

The positive momentum in equity markets extended globally, with the Stoxx Europe 600 gaining 1.6%, Japan's Nikkei increasing by 1.1%, and Hong Kong's Hang Seng Index rising by 0.8%.

Oil prices also saw an increase, with Brent crude, the international benchmark, closing at $86.85 per barrel.

John Liu
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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