Wall Street stabilized after a strong rally, as traders anticipated that the Federal Reserve would begin cutting interest rates next year but predicted that policymakers would counterbalance recent easing in financial conditions. The S&P 500, coming off its best week of the year, made only slight gains but still looked to extend its sixth consecutive advance. The major drivers of Monday’s gains were megacap stocks, which had previously been beaten down. Despite the recent rebound, Morgan Stanley analyst Michael Wilson referred to the rally as a bear-market rally, citing a gloomy earnings outlook, weaker macro data, and deteriorating analyst views.
Traders are pricing in over 100 basis points of Fed rate cuts by the end of next year, with expectations for the first cut now moved up from July to June. However, Andrew Brenner of NatAlliance Securities believes the Fed will push back on market expectations of four rate cuts next year, asserting that Fed Chair Jerome Powell will attempt to claw back some of the eased financial conditions. BlackRock Inc.’s research arm warns that any year-end rally in stocks may be short-lived due to equities not fully reflecting the projected longer-term higher rates. JC O’Hara, chief market technician at ROTH MKM, urges caution and advises investors to monitor whether the October breakdown was a bear trap or not.
In corporate news, Tesla plans to produce a new model at its Berlin factory designed for the European market, while Tyson Foods is recalling around 30,000 pounds of chicken nuggets due to potential contamination with metal pieces. Berkshire Hathaway’s cash pile reached a record high of $157.2 billion, bolstered by elevated interest rates and a lack of attractive investment opportunities. Bumble Inc.’s CEO, Whitney Wolfe Herd, announced her departure from the company she founded. FedEx is encouraging its pilots to seek work at a unit of American Airlines Group as the surge in demand for air cargo during the pandemic slows. Ryanair Holdings plans to pay out a dividend of €400 million ($430 million) as Europe’s largest discount airline benefits from increasing traffic.
Looking ahead, numerous events are scheduled this week, including Australia’s rate decision, US trade data, UBS earnings, and speeches from various central bank officials, including Fed Chair Jerome Powell at the IMF’s annual research conference. In terms of market movements, the S&P 500 rose slightly, while the Nasdaq 100 edged higher and the Dow Jones Industrial Average remained unchanged. The Bloomberg Dollar Spot Index was relatively stable, and cryptocurrency prices experienced modest gains. Bond yields increased, with the yield on 10-year Treasuries rising by seven basis points. Regarding commodities, West Texas Intermediate crude oil prices climbed, while gold prices dipped slightly.
