[New York Stock Market] Breaks Downtrend and Rebounds... Nasdaq Up 1.13%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed higher across the board on the 8th (local time) following a rebound after a week of declines. This was largely due to significant rebound buying after recent sharp drops ahead of next week's Federal Reserve (Fed) interest rate decision. Treasury yields also stopped their decline and surged upward.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,781.48, up 183.56 points (0.55%) from the previous session. The large-cap focused S&P 500 index rose 29.59 points (0.75%) to 3,963.51, and the tech-heavy Nasdaq index closed at 11,082, up 123.45 points (1.13%). The S&P 500 ended its longest losing streak since last October.

Quincy Crosby, Global Chief Strategist at LPL Financial, cited the unemployment claims data released that day as a market catalyst, stating, "There was strong selling pressure over the past few days, and it didn’t take much to create a typical rally." He explained that the "bad news turned into good news," referring to the highest number of Americans filing for unemployment benefits for at least two weeks since February. Art Hogan, Chief Market Strategist at B. Riley, also noted, "The notion that good economic news is bad for the market continues."

By sector, nine out of the 11 sectors in the S&P 500 rose, except for energy and communication services. The semiconductor and technology sectors, which had seen significant declines this year, showed gains. Nvidia closed up 6.51% from the previous session. Amazon (+2.14%), Apple (+1.21%), and Meta Platforms (+1.23%) also rose sharply.

On the other hand, energy stocks such as Marathon Oil (-2.08%), Occidental Petroleum (-0.38%), and Devon Energy (-1.17%) underperformed amid continued declines in international oil prices. ExxonMobil’s stock rose 0.74% following news of an expanded share buyback program.

Additionally, the U.S. Federal Trade Commission (FTC) decided to file an antitrust lawsuit related to Microsoft’s (MS) acquisition of Activision Blizzard, causing MS shares to jump 1.24%, while Activision Blizzard fell 1.54%. GameStop surged over 11% on news of reduced losses and inventory. Tesla closed slightly lower amid reports that CEO Elon Musk is considering a margin loan secured by Twitter shares due to high interest costs from financing the Twitter acquisition.

Investors are closely watching recession concerns while awaiting next week’s Fed rate decision and the November Consumer Price Index (CPI) release. At the final meeting of the year, the December FOMC, a "big step" (0.5 percentage point rate hike) is more likely than a "giant step" (0.75 percentage point hike). According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in over a 79% chance of a big step this month.

Bank of America (BoA) expects the Fed to raise rates by 0.5 percentage points at this meeting and to raise next year’s rate forecast on the dot plot to a higher range of 5.0-5.25%. BoA said, "The statement released after the meeting will see little change. The economic outlook summary for GDP, inflation, and unemployment will be similar to before," emphasizing that the key issue is how long the Fed will maintain tightening. BoA also expects Fed Chair Jerome Powell to emphasize a hawkish tone at the post-meeting press conference, reminding investors that "a slower pace of rate hikes does not mean a lower terminal rate, and the Fed’s mission is not yet complete."

In the New York bond market that day, U.S. Treasury yields reversed their downward trend and rose across the board. The 10-year Treasury yield increased from 3.407% to 3.492%. The 2-year yield, sensitive to monetary policy, also jumped to 4.312%. The inversion of the yield curve, where the 10-year yield remains below the 2-year and 3-month yields, continues. This is generally interpreted as a sign of an impending recession.

According to economic media CNBC, the yield spread between the 10-year and 3-month Treasuries approached 90 basis points, the widest since January 2001. The day before, Cathie Wood, well known as the "Money Tree Sister," described this bond market movement as a signal that the Fed is making a serious mistake.

Jonathan Krinsky of BTIG assessed that the stock market rebound was not unusual given the recent selling pressure and the upcoming inflation data releases. After the market close that day, companies such as Lululemon, DocuSign, Broadcom, and Costco are scheduled to report earnings.

Economic indicators met expectations. According to the U.S. Department of Labor, initial jobless claims last week increased by 4,000 to 230,000 from the previous week. However, continuing claims for unemployment benefits, which count those claiming benefits for at least two weeks, reached the highest level since early February, raising concerns that the labor market may be cooling. Continuing claims rose by 62,000 to 1.67 million.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s "fear gauge," fell more than 1.7% to the 22 level. The Dollar Index, which measures the dollar’s value against six major currencies, dropped over 0.2% to the 104 level.

Oil prices fell for the fifth consecutive trading day. On the New York Mercantile Exchange, January West Texas Intermediate (WTI) crude futures closed at $71.46 per barrel, down 55 cents (0.76%) from the previous session. This is the lowest level since December 21, 2021. The five-day decline exceeds 12%. The recent increase in recession concerns, combined with the Fed’s tightening stance, has exerted downward pressure. Reports of rising crude inventories also weighed on prices.