Optimism About Fed Pivot May Lead To Continued Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to extend the strong upward move seen over the course of the previous session.

The markets may continue to benefit from optimism the Federal Reserve will signal a slowdown in monetary policy tightening following its meeting next week.

The Fed is widely expected to raise interest rates by another 75 basis points next week, but traders are hopeful the central bank will indicate plans to slow the pace of rates hikes beginning in December.

The optimism partly stems from a Wall Street Journal report suggesting some Fed officials have expressed greater unease with the aggressive pace of rate hikes.

Overall trading activity may be somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.

A report on personal income and spending that includes a reading on inflation said the preferred by the Fed is likely to be in focus in the coming days.

Traders are also likely to keep an eye on reports on consumer confidence, new home sales, and durable goods orders and third quarter GDP.

Earnings news may also drive trading this week, with Coca-Cola (KO), General Electric (GE), Alphabet (GOOGL), Amazon (AMZN), Microsoft (MSFT), McDonald’s (MCD), Apple (AAPL), Intel (INTC) and Exxon Mobil (XOM) among a slew of big-name companies due to report their quarterly results.

Stocks saw significant volatility in early trading on Friday but moved sharply higher over the course of the session. The major averages more than offset the pullback seen over the two previous session, with the Dow reaching its best closing level in over a month.

The major averages reached new highs for the session late in the trading day. The Dow soared 748.97 points or 2.5 percent to 31,082.56, the Nasdaq surged 244.87 points or 2.3 percent to 10,859.72 and the S&P 500 spiked 86.97 points or 2.4 percent to 3,752.75.

With the strong upward move on the day, the major averages also moved sharply higher for the week. The Nasdaq skyrocketed by 5.2 percent, while the Dow and the S&P 500 shot up by 4.9 percent and 4.7 percent, respectively.

The rally on Wall Street comes as treasury yields showed a notable downturn after extending a recent surge in early trading.

The yield on the benchmark ten-year note finished the day modestly lower after spiking to a fifteen-year intraday high earlier in the session.

Traders have recently kept a close eye on developments in the bond market amid concerns about the Federal Reserve’s aggressive interest rate hikes.

The pullback by yields came after a report from the Wall Street Journal suggested Fed officials are likely to debate whether and how to signal plans for a smaller rate hike in December following a widely expected 75 basis point increase in early November.

While recent comments from Fed officials have generally been hawkish, the journal said a few are signaling greater unease with the aggressive pace of rate hikes.

“The 10-year Treasury yield looked like it had a clear path towards 4.40%, but that quickly changed and now it seems like the October bond market selloff is ready for a break,” said Edward Moya, senior market analyst at OANDA.

He added, “Policymakers still need to look at the data and right now the risks of overtightening should still remain on the table.”

The volatility on the day may have reflected below average volume, as some traders stuck to the sidelines amid a lack of major U.S. economic data.

Despite the rally by the broader markets, shares of Snap Inc. (SNAP) moved sharply lower after the Snapchat parent reported mixed third quarter results and forecast flat revenue for the current quarter.

Hospital operator Tenet Healthcare (THC) also posted a steep loss after reporting better than expected third quarter results but providing disappointing guidance.

Shares of American Express (AXP) and Verizon (VZ) also moved to the downside even though the companies reported third quarter earnings that beat analyst estimates.

Steel stocks moved sharply higher over the course of the session, driving the NYSE Arca Steel Index up by 5.3 percent to a one-month closing high.

Substantial strength also emerged among oil service stocks, as reflected by the 4.8 percent surge by the Philadelphia Oil Service Index. The index soared to its best closing level in over four months. The rally by oil service stocks came amid an increase by the price of crude oil.

An increase by the price of gold also contributed to considerable strength among gold stocks, resulting in a 4.5 percent jump by the NYSE Arca Gold Bugs Index.

Computer hardware, semiconductor, and housing stocks also showed significant moves to the upside as broad based buying interest emerged on Wall Street.

Commodity, Currency Markets

Crude oil futures are tumbling $1.87 to $83.18 a barrel after climbing $0.54 to $85.05 a barrel last Friday. Meanwhile, after jumping $19.50 to $1,656.30 an ounce in the previous session, gold futures are slipping $3 to $1,653.30 an ounce.

On the currency front, the U.S. dollar is trading at 149.01 yen versus the 147.65 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $0.9845 compared to last Friday’s $0.9862.

Asia

Asian markets ended mixed on Monday, with Chinese and Hong Kong stocks suffering heavy losses as China’s Communist Party ended its 20th National Congress over the weekend with no signs of a significant change in the zero-COVID policy that has crimped business and trade.

In addition, Xi Jinping, who secured a third term as Chinese President, indicated no changes in policies straining relations with Washington and Asian neighbors.

Markets in Japan, South Korea and Australia rose amid hopes that the U.S. central bank may adopt a less aggressive policy stance after an expected 75 basis-point rate hike when Fed policymakers meet next week.

The dollar stayed strong as suspected Bank of Japan intervention gave only brief respite to the Japanese yen. Oil prices fell more than 1 percent in Asian trading after customs data showed China’s crude imports fell 2 percent from a year earlier in September.

China’s Shanghai Composite Index tumbled 2.0 percent to 2,977.56 after official data showed GDP grew well below target in the third quarter.

GDP rose an annual 3.9 percent, beating forecasts for 3.3 percent growth but well short of the official full-year target of 5.5 percent, which is already its lowest in three decades.

The delayed release of other economic data for September painted a mixed picture of the world’s second-largest economy. Hong Kong’s Hang Seng Index plunged 6.4 percent to 15,180.69, dragged down tech stocks.

Japanese shares eked out modest gains after U.S. stocks soared on Friday following a Wall Street Journal report that some Fed officials are concerned about tightening policy too much.

The Nikkei 225 Index ended 0.3 percent higher at 26,974.90, giving up some early gains on concerns about the outlook for China’s economy and a deepening sell-off in Hong Kong.

The broader Topix edged up 0.3 percent to 1,887.19, with chip-related companies like Tokyo Electron, Screen Holdings and Advantest climbing 2-3 percent.

Seoul stocks rose sharply to snap a three-day losing streak after financial authorities pledged at least 50 trillion won ($34.7 billion) in support for credit markets that have been strained by rising interest rates.

The Kospi rallied 1.0 percent to 2,236.16, with construction and tech companies leading the surge. Battery materials producer POSCO Chemical jumped 4 percent after reporting its largest quarterly operating profit for the third quarter ever.

Australian markets posted strong gains as higher bullion prices helped lift gold miners. Newcrest Mining, Regis Resources and Northern Star Resources jumped 3-5 percent.

The benchmark S&P/ASX 200 Index jumped 1.5 percent to 6,779.40, while the broader All Ordinaries Index ended 1.6 percent higher at 6,978.40.

Europe

European stocks are mostly higher on Monday amid hopes the Federal Reserve may signal a slowdown in monetary policy tightening following its meeting next week.

While the U.K.’s FTSE 100 Index has edged up by 0.2 percent, the German DAX Index and the French CAC 40 Index are jumping by 1.5 percent and 1.8 percent, respectively.

In economic news, economic activity for the Eurozone dropped further into recessionary territory in October, a survey showed earlier, with the S&P Global Composite PMI falling to 47.1, from 48.1 in September.

Economic activity in the U.K.’s private sector also contracted at an accelerating pace in early October. The S&P Global/CIPS Composite PMI dropped to 47.2 from 49.8 in September.

Italian political developments were also in focus after Giorgia Meloni was sworn in as the country’s first woman prime minister on Saturday.

The British pound has gained ground as former chancellor Rishi Sunak closed in on becoming the new prime minister after the withdrawal of Boris Johnson from the Tory leadership race on Sunday night.

Banks are trading mostly higher, with UBS, Deutsche Bank and Barclays posting notable gains on the day.

Helical, a property investment and development company, has also jumped in London after saying it had completed four new lettings totaling 19,642 sq. ft.

Pearson, a publishing and education company, has also soared. The company said its underlying sales grew 7 percent in both the third quarter as well as in the first nine months of fiscal 2022.

Imerys, which specializes in the production and processing of industrial minerals, has also surged after saying it wants to become the leading supplier of lithium in Europe.

Meanwhile, Dutch consumer electronics giant Philips Electronics NV has tumbled as it announced 4,000 job cuts following a massive recall of respiratory machines that slashed around 70 percent off its market value in the past year.

Technology investor Prosus has also plunged, tracking weakness in Hong Kong tech giants.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Myovant Sciences (MYOV) are moving sharply higher in pre-market trading after the drugmaker agreed to be acquired by a subsidiary of majority shareholder Sumitomo Pharma for $27 per share in cash.

Office-sharing company WeWork (WE) is also likely to see initial strength after Cantor Fitzgerald initiated coverage of the company’s stock to Overweight

On the other hand, shares of Williams-Sonoma (WSM) may move to the downside after Jefferies downgraded its rating on the housewares retailer to Underperform from Hold.