Stocks edged higher this morning, riding the momentum of last week’s major gain. Investors now believe that the Federal Reserve is done hiking rates for the year, and that’s given bulls the green light to start buying again at a healthy clip.
Leading the charge was the Nasdaq Composite, which gained around 0.3%. The S&P 500 also saw an uptick, albeit a modest one surpassing 0.1%, while the Dow Jones Industrial Average traded flat through noon.
This surge in optimism was fueled by Friday’s jobs report, which missed estimates while showing an increase in unemployment from 3.8% to 3.9%. Wage inflation cooled, too. These indicators solidified the market’s hope for an end to the Fed’s interest rate hikes – an attitude that carried over into the current week.
Yields on the 10-year Treasury note climbed about 7 basis points, settling near 4.63%.
The market will be looking for clues from several Federal Reserve officials set to speak this week, including Fed Chair Jerome Powell, who will make two appearances. Regional Fed presidents John Williams and Raphael Bostic will also take the stage, and their comments are likely to offer further insight into the Fed’s next steps.
Despite the current wave of optimism, some Wall Street experts caution that the recent market rally could be a short-lived bear market bounce rather than the start of a sustained climb. Often bearish (and often wrong) Morgan Stanley strategist Mike Wilson last week voiced skepticism about the rally’s longevity. Keep in mind, though, that Wilson has had a spotty track record over the last few years; doing the opposite of what he’s said would have produced outsized market returns.
With earnings season still underway, the market awaits more corporate reports, with Disney’s results on Wednesday poised to be a focal point. The economic calendar, however, looks sparse for the week.
In commodity news, oil prices climbed today after Saudi Arabia and Russia confirmed their commitment to deeper voluntary supply cuts until the end of the year.
Brent crude futures rose $1.08, or 1.3%, hitting $85.97 a barrel, while U.S. West Texas Intermediate crude increased $1.30, or 1.6%, reaching $81.81.
On Sunday, Saudi Arabia pledged to stick with its additional voluntary cut of 1 million barrels per day in December, aiming to keep production around 9 million barrels per day. Russia echoed this commitment, maintaining its voluntary cut of 300,000 barrels per day from its crude oil and petroleum product exports through December.
These supply constraints, set to last until year’s end, come as fuel demand remains stronger than many analysts predicted, supporting oil prices.
Oil prices are bouncing back after both benchmarks shed about 6% in the week ending November 3rd.
The cuts might extend into the first quarter of 2024 due to typically weaker oil demand at the start of the year, ongoing economic growth concerns, and OPEC+’s aim to keep the oil market stable and balanced.
However, today’s oil price gains faced a check from a reported slowdown in crude processing at Chinese refineries, due to shrinking profit margins and a lack of export quotas for the year’s end.
Looking ahead, investors will keep an eye out for more economic data from China on Tuesday after last week’s weak October factory data.
Expectations for China’s October exports suggest a 3.3% year-on-year drop, a Reuters poll indicated, which would be a deceleration from the 6.2% fall seen in September.
Across in Europe, economic concerns linger as recent Purchasing Managers’ Index (PMI) data revealed an accelerating slowdown in eurozone manufacturing during October.
In short, softer data is emerging all over the globe, which should continue to lift the pressure off stocks after a brutal three-month skid. But investors need to be careful here, as the data could quickly go from bad to terrible, transforming dovish hopes into major recession fears. That would hurt stocks in the long run, even if the transition into a pre-recession period produces an impressive “Santa Rally” to end the year.
