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Stock Market in Focus as Investors are Confident Inflation Will Continue to Fall

Miguel A. Rodriguez
Miguel A. Rodriguez
07 November 2023

Speeches from Federal Reserve (Fed) officials this week will be heard with the scope of finding out more about interest rate hikes and if the cycle has really come to an end. After Wall Street’s main indices performed their best week last week, the stock market stabilised yesterday as a series of bond auctions are planned.  

Stock market stabilises after S&P 500 posted its best week of the year

The stock market stabilised on Monday after Wall Street's main indices enjoyed their best week of the year. Stocks rose on the back of weaker-than-expected US employment data for October, which also added to hopes that the unprecedented Fed’s monetary tightening cycle could be coming to an end.

After posting its best week of 2023, the S&P 500 fluctuated throughout the day yesterday and headed towards its sixth consecutive day of gains. 

USA500 november 7 2023.png

USA500 monthly chart, November 7, 2023. Source: CAPEX.com WebTrader. 

Bond yields felt a technical rise

Treasury yields reversed some of the downward movement that occurred on Friday following the labour market numbers, with 10-year yields rising seven basis points to 4.64%. Even though this movement was of a technical nature, it was also motivated by the increase in bond supply before a series of three auctions that will begin today, Tuesday.

This rise in bond yields, although only of a technical nature, influenced the stock market and managed to slow the momentum of the previous week.

Speeches by Fed officials planned for this week

This week's economic data is unlikely to move markets, but investors will be waiting for speeches from Fed officials who are expected to share their thoughts on economic issues. Chairman Jerome Powell will make two appearances this week, the second of which will include a question-and-answer session on Thursday.  

Fed fund futures indicate around an 85% chance the Fed has ended its rate hike

For now, government bond yields, or market interest rates, will remain the primary fundamental factor affecting market performance. According to Fed funds futures, there is an 85% probability that the Fed has completed its cycle of rate hikes and an 80% probability that it will start cutting rates in June.

An easing of monetary policy will be positive for the stock market

Investors are increasingly confident that inflation will continue to slow, especially after Friday's jobs report. A slowing economy could prompt the Fed to ease policy next year in order to prevent its policy from becoming more restrictive in real terms.

Many investors are betting on this, and if it turns out to be true, it would be good news for stock markets, where many analysts believe that this latest downward correction has already come to an end.

Key Takeaways

  • The stock market steadied on Monday as bond supply increased.
  • Hopes that the Fed has ended its hike cycle renewed by weaker-than-expected US employment data.
  • The S&P 500 index fluctuated yesterday as it headed towards its six straight day of gains.
  • Treasury yields erased some losses and the 10-year yields reached 4.65%.
  • Markets will focus on speeches by Fed officials this week.
  • Fed funds futures indicated around an 85% chance that the Fed has reached the end of its rate hike cycle.
  • Investors are confident that inflation will continue to drop.
  • If inflation falls further and the Fed does not raise rates anymore, it will help the stock market to perform better.

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Sources: Bloomberg, Reuters 

 

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.