Although central banks have assured investors that the end of the rate hiking cycle is near, economic uncertainty is still seen to prevail, leading to a buying frenzy of technology stocks and gold as safe havens.
Yesterday, the stock market enjoyed a strong rally as banks paused their recent falls and investors purchased some of the largest tech companies in the world, which many on Wall Street view as a kind of safe haven during difficult and unpredictable economic times.
A rise in mega-cap companies such Apple Inc. and Microsoft Corp. drove the Nasdaq 100 to its highest level since August, with the gauge crossing the threshold of a bull market after climbing more than 20% from its December low.
Following the banking turbulence that has shaken markets around the world, investors with lots of liquidity have turned to the tech stocks that are currently gaining popularity.
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The Nasdaq 100 index, which gained more than 2% yesterday, broke through a key resistance level at 12,950, putting it in the bull market zone.
The market is regaining confidence after several days of unease during which investor concerns of a worldwide banking crisis expanded. This was due to the quick response of the regulatory and monetary authorities to the situation in the North American regional banks and in Switzerland with Credit Suisse. Both the Federal Reserve (Fed) and the European Central Bank acted by slightly raising interest rates while signaling to the market that this cycle of rate hikes will shortly be coming to an end. The Fed, in particular, has done this because its voting members anticipate interest rate reductions next year.
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Treasury yields were under pressure yesterday, with the 10-year note at 3.45% and the shorter-term 2-year note falling 8 basis points. This is a definite indication that the market is betting on interest rate cuts before the end of the year in addition to anticipating the end of rate hikes.
In this scenario of lower interest rates and a weakening dollar, gold is the most favored asset. In an economy with persistently high inflation and consequently very low real interest rates, investors have resumed purchasing gold as a safe haven.
Yesterday the yellow metal rallied strongly to the resistance zone of $1998 per ounce. Over this level, it has a clear path to the all-time high price of $2070 per ounce.
Source: Bloomberg, Reuters