U.S. stock markets closed mixed on Friday in absence of any genuine trigger. Moreover, trading time was shortened due to Black Friday. The Dow ended in positive territory while the Nasdaq Composite finished in negative zone. The S&P 500 fell marginally. For the week, these three major stock indexes ended in green.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) was up 5% or 152.97 points to close at 34,347.03. Notably, 20 components of the 30-stock index ended in positive territory while 10 in red.
The tech-heavy Nasdaq Composite finished at 11,226.36, declining 0.5% due to weak performance of large-cap technology stocks. The major loser of the tech-laden index was JD.com Inc. JD, shares of which tanked 5.3%. The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 fell less than 1% to end at 4,026.12. Seven out of the 11 broad sectors of the benchmark index closed in ;positive territory while four in red. Each of the Health Care Select Sector SPDR (XLV), the Real Estate Select Sector SPDR (XLRE) and the Utilities Select Sector SPDR (XLU) gained 0.6%. On the other hand, each of the Technology Select Sector SPDR (XKK) and the Communication Services Select Sector SPDR (XLC) decreased 0.6%.
The fear-gauge CBOE Volatility Index (VIX) was up 0.4% to 20.50. A total of 4.54 billion shares were traded on Friday, lower than the last 20-session average of 11.25 billion. Advancers outnumbered decliners on the NYSE by a 1.81-to-1 ratio. On Nasdaq, a 1.35-to-1 ratio favored advancing issues.
Expectation of a Relaxed Monetary Tightening
The consumer price index (CPI) in October rose 0.4% month over month and 7.7% year over year. The consensus estimate was for a month-over-month rise of 0.5% and a year-over-year gain of 7.9%. Core CPI (excluding volatile food and energy items) increased 0.3% month over month and 6.3% year over year. The consensus estimate was for a rise of 0.5% month over month and 6.5% year over year.
The producer price index (PPI) increased 0.2% in October compared with the consensus estimate of a 0.5% rise. September’s data was revised downward from 0.4% to 0.2%. Year over year, PPI rose 8%, dropping from the 8.4% rise in October. Core PPI increased 0.2% in October compared with the consensus estimate of 0.4%. Year over year, core PPI rose 5.4% in October.
Although the Fed is yet to signal any shift from its ultra-hawkish monetary policies, a section of Fed officials has recently spoken in a relatively dovish tone. The minutes of the Fed’s November FOMC meeting revealed that a “substantial majority” of Fed officials favor reducing the magnitude of the interest rate hike going forward.
The FOMC minute stated "A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee's goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate."
The Fed has hiked the benchmark interest rate by 3.75% so far in 2022 with a 75 basis-point rise in the last four FOMC meetings. At present, the Fed fund rate is within the range of 3.75-4%. At present, per the CME FedWatch, there exists a 75.8% probability that the central bank will reduce the magnitude of rate hike to 50 basis points in December FOMC.
In his post-FOMC statement in November, Fed Chairman Jerome Powell warned that the terminal interest rate may go beyond 5% as estimated earlier and a soft landing of the economy may not be realized. However, with several important Fed officials recently expressing their dovish views, market participants are unsure of whether the terminal interest rate will cross the 5% threshold or stay below that.
The holiday-shortened last week was a good one for Wall Street. The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – have advanced 1.8%, 1.5% and 0.7%, respectively. Expectations of market participants that the Fed will reduce the magnitude of rate hike from next FOMC meeting was the primary reason for stock markets northbound move.
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