[New York Stock Market] Rebound Buying Ahead of Weekend... Nasdaq Closes Up Over 2%

S&P 500 and Dow Jones Both Rise Over 1%
Strength in Technology and Telecommunications Sectors
Impact of Rebound Buying and Decline in Bond Yields

The U.S. New York stock market closed higher ahead of the weekend due to rebound buying.

On the 10th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.15% from the previous day to close at 34,283.10. The S&P 500 index, which is centered on large-cap stocks, also rose 1.56% to close at 4,415.24. Surpassing the 4,400 level, it recorded the highest closing price since September 19. The tech-heavy Nasdaq index rose the most, by 2.05%, closing at 13,798.11.

All 11 sectors comprising the S&P 500 index rose. In particular, the technology sector (2.59%) and communication services sector (1.67%) surged sharply.

Rebound buying followed the previous day’s decline caused by Federal Reserve (Fed) Chair Jerome Powell’s tightening remarks, while expectations for bond market stabilization also seemed to be reflected. On the 9th (local time) at the International Monetary Fund (IMF) conference, Fed Chair Jerome Powell stated, "I am still not confident that we have achieved a sufficiently restrictive policy stance to bring inflation back to target," and added, "If it is appropriate to pursue tighter policy, we will not hesitate."

U.S. Treasury yields, which surged the previous day, also showed signs of calming. The 30-year yield fell about 3 basis points (bp; 1bp=0.01%) to 4.73%, the 10-year yield dropped about 1bp to 4.61%, and the 2-year yield moved near 5.04%, up about 1bp from the previous day. Generally, rising bond yields are interpreted as a signal of increased recession risk, causing stock prices to fall. Conversely, when bond yields fall, the stock market tends to rise.

Consumer sentiment worsened, and consumers’ inflation expectations rose again. The preliminary consumer sentiment index for November released by the University of Michigan was 60.4, down 5.3% from the previous month’s 63.8. This figure was lower than the Wall Street Journal (WSJ) forecast of 63.7. The consumer sentiment index has declined for four consecutive months.

Short- and long-term inflation expectations rose significantly. The 1-year expected inflation rose 0.2 percentage points to 4.4%, the highest level since November last year. Consumers expected inflation to be 4.4% one year from now, far exceeding the Fed’s forecast of 2.5%. The 5-year long-term expected inflation rose to 3.2%, the highest since 2011. If inflation remains high, the Fed’s high interest rate environment is likely to persist longer.

Experts analyzed that a decline in Treasury yields provides grounds for the Fed to raise rates again. However, they said next week’s Consumer Price Index (CPI) could change the trend.

Tom Essaye, founder of Sevens Report Research, explained in a report, "Powell’s remarks were almost consistent with his statement on the 1st, but the rally in stocks and bonds that followed was excessive and not based on facts. If the rise in the 10-year Treasury yield replaced the Fed’s role and made rate hikes unnecessary, then the short and sharp drop in the 10-year yield could discard the reason not to raise rates and create the possibility of rate hikes again."

Michael Pister of Commerzbank said in a report, "Powell’s remarks the previous day sounded much more hawkish than before. Since there is not much time left this year, if next week’s inflation data is lower than expected, the sentiment will change quickly."

Meanwhile, according to the Chicago Mercantile Exchange (CME) FedWatch, the probability that the Fed will hold rates steady in December at the close of the federal funds (FF) futures market was 90.9%, while the probability of a 0.25 percentage point rate hike was 9.1%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) fell 7.33% from the previous session to 14.17.