Federal Reserve Chairman Jerome Powell said Wednesday that "moderating the pace of rate increases may come as soon as the December meeting." Yet he added that the terminal rate would need to be somewhat higher than thought at the time of the September meeting. Fed fund futures for the May 3 FOMC are now showing a terminal rate at 4.9150% vs. 5.12% a month ago. Powells dovish comments boosted stocks even though the labor department announced another month of job growth. US employers hired 263,000 new positions in November, well above the 200,000 economists had forecast in spite of rising interest rates and a series of tech company layoffs.
The S&P 500 rose 1.13% (-14.57% for the year). The Dow Jones Industrial Average edged up 0.24% or 83 points, bringing its year-to-date performance to -5.25%. The Nasdaq Composite advanced the most with a gain of 2.09% (-26.74% year-to-date). The CBOE volatility index (VIX) fell as much as 7% to its lowest level (19.06) in nearly eight months.
European stocks extended their winning streak for the ninth straight week (MSCI EMU up 0.46%, down 10.70% year-to-date) though ECB President Christine Lagarde warned on Monday that inflation has not peaked yet and the central bank will have to stop simulating demand. That said, preliminary estimates showed that annual inflation in the eurozone eased to 10% in November, from a record high of 10.6% in October. In the UK, the FTSE gained 0.93% and is now up 2.32% for the year.
In Asia, Japans Nikkei bucked the trend (down 1.79% week-over-week, down 3.52% YTD) while China stocks rebounded sharply. The Shanghai composite jumped 1.76% (down 13.29% YTD) though data released on Wednesday indicated that Chinese business activity shrank further in November in the wake of a new outbreak of Covid cases. Beijing might scale back its zero-Covid policy after massive protests across the country.
Energy sector dragged lower by natural gas prices
Only two S&P sectors finished the week in negative territory. Energy was the worst performer (down 1.97%), pushed lower by US natural gas prices in freefall (-13.47% over the week) following estimates of strong production. Falling yields hit financials (down 0.64%) by contrast with communication services (up 3.31%). Meta Platforms (META), the Facebook parent, was up 10.84% but remains down 63% YTD. Netflix shares (NFLX) also bounced back (up 12.21%).
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