Search parties returned on Friday night from another unsuccessful day’s search for the market bears who had spent all of October pushing bond yields higher, driving down shares and commodities, and leaving everyone else fearful of a still-too-high US dollar.
In just two and a bit days of trading – from 2 pm New York time on Wednesday to Friday’s close – the bears simply vanished, vanquished by a change in belief about bonds, the Fed, interest rates, the US economy, and a hedge or two about 2024.
This upsurge in enthusiasm spread on Friday, adding to the shift toward a more confident momentum. So much so that the world’s most important index, the S&P 500, had its best week in over a year, since October 2022.
In fact, Thursday and Friday saw the S&P 500 dining out on the change in confidence. After falling 3.1% in October, it surged 5.9% last week, thanks to significant gains on Thursday and Friday.
All of the S&P 500’s sectors rose week-to-week, led by an 8.5% jump in real estate, a 7.4% rise in financials, and a 7.2% increase in consumer discretionary. The smallest increase was logged by energy, which still rose 2.3%.
This week, there will be a number of speeches by Fed officials, including Powell, which will once again be over-analyzed. He won’t say anything fresher than what he told the post-meeting media conference a year ago.
Not a bear in sight, but no real bulls either, as they remain wary and shell-shocked from last month’s downturn.
So, the S&P 500 ended the week at 4,358.34, up nearly 1% on the day and from the previous Friday’s closing level of 4,117.37. The Dow finished up 0.66% at 34,061.32 on Friday, and the Nasdaq was up 1.38%, closing the week at 13,478.28.
The Dow was up 5.07% over the week, and the Nasdaq jumped nearly 6.5%, even though it was a weak week for many tech stocks.
For instance, Apple shares fell 0.52% as analysts wondered if the year-long slide in revenue will repeat in the current quarter.
Eurozone shares rose 4.3% (while London shares could only manage a 1.7% rise), Japanese shares rose 3.1%, and Chinese shares edged up 0.6% after very weak activity updates for the economy during the week.
Trade and inflation figures this week will again be a big test of the Chinese economy.
The global rebound and falling bond yields saw the Australian share market rise 2.2% for the week after Friday’s 1.14% leap. Despite Friday’s confidence on Wall Street, the ASX futures market was only showing a modest 14-point gain for the resumption of trading this morning (Monday).
The 10-year US Treasury yield’s progress from Tuesday through Friday best told the story of the rebound from the jaws of the bear late last week.
After peaking for the week at 4.92% on Tuesday in the final session of October, the yield ended Friday at 4.52% and looked to fall further.
The US dollar took a day or so to follow suit and eased Friday in the wake of the softer jobs report for October, as a result, the Aussie dollar jumped past 65 US cents to end at 65.13, up more than 1.2% for the day.
It was the highest close for the Aussie currency since mid-August, or around six weeks ago.
October’s jobs report played a part in helping add to the growing belief that the Fed will not lift rates, even though it leaves them ‘higher for longer.’
US analysts now say the ‘higher for longer’ policy actually brings into play speculation of a rate cut sometime in 2024, especially if the soft jobs report becomes a trend (though retail sales will have to soften sharply as well).
US businesses added 150,000 jobs in October, down from a revised 297,000 in September (which was down 39,000 from the initially reported 336,000).
That number was pulled down by a decline of 33,000 auto manufacturing jobs due to a UAW strike that now appears to be resolved, so the real figure could have been just above the 170,000 forecast.
The unemployment rate edged up to 3.9%, the highest in 21 months because more people were looking for work (a bullish point) than in September.
The rate has now risen half a percentage point from its multi-decade low of 3.4% earlier this year.
US wages rose at an annual 4.1% rate, a touch lower than in September, so another month with a small real wage increase for millions of American workers, with the Consumer Price Index only rising 3.7% for the year to September.
More and more investors are now hoping that the weak jobs data will mean the bears are heading for an early hibernation after the Fed meeting week and comments by Chair Jay Powell.
Don’t be surprised if sentiment becomes more confident and improves up until the end of the year.
The AMP’s chief economist, Shane Oliver, says, “Major central banks, led by the Fed, are increasingly looking like they are at the top of interest rates (the Bank of Japan and RBA are likely exceptions to this).
“Inflationary pressures generally are continuing to recede; US earnings are coming in far better than expected; the $US looks to be rolling over, which is a sign of ‘risk on,’ and we are coming into what is often the strongest part of the year for shares from a seasonal perspective.
“November is seasonally the strongest month of the year in the US, albeit for Australia, seasonal cheer often doesn’t kick in until December.”