Stocks Extend Rally on Expected Fed Dovish Shift

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.92%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.82%. 

Stock indexes Friday extended Thursday’s sharp rally, with the S&P 500 posting an 8-week high, the Dow Jones Industrials climbing to a 2-1/2 month high, and Nasdaq 100 posting a 7-week high. 

Stocks rallied sharply again Friday, building on Thursday’s gains, which were sparked by the weaker-the-expected U.S. CPI report and hopes for a less hawkish Fed.  Also, a jump of more than +2% in crude prices Friday boosted energy stocks.  There was no trading in the cash U.S. Treasury securities market Friday, which was closed for Veteran’s Day.

Global equity markets also moved higher Friday on carry-over support from a +1.69% rally in China’s Shanghai Composite to a 7-week high after the Chinese government eased some of its pandemic travel restrictions.  The measures validated market expectations for easing China’s strict Covid Zero policies.

Gains in the Dow Jones Industrials were limited by weakness in healthcare companies and drugmakers.  The sharp rally seen on Thursday and Friday prompted some liquidation of defensive stocks, which outperformed this year as investors braced for the economic impact of sharply higher interest rates.

Bitcoin fell more than -5% Friday on concerns about crypto-contagion from the liquidity crisis that forced FTX.com to file for Chapter 11 bankruptcy.  Also, crypto lender BlockFi paused withdrawals and said it could no longer operate business as usual, citing “a lack of clarity” on the status of FTX.com, FTX, and Alameda Research. 

Friday’s U.S. economic news was bearish for stocks.  The University of Michigan’s Nov U.S. consumer sentiment index fell -5.2 to a 4-month low of 54.7, weaker than expectations of 59.5.  Also, the University of Michigan's U.S. Nov 5-10 year inflation expectations rate unexpectedly rose +0.1 to 3.0%, higher than expectations of unchanged at 2.9%.

Comments from Boston Fed President Collins were dovish for Fed policy and bullish for stocks when she said, "I think that as we have raised interest rates that the risk of overtightening has increased."

Today’s stock movers…

Strength in technology stocks Friday underpinned the overall market.  DocuSign (DOCU) closed up more than +15% Friday to lead gainers in the Nasdaq 100.  Also, Align Technology (ALGN) closed up more than +11%, and Okta (OKTA) closed up more than +9%.  Advanced Micro Devices (AMD), Netflix (NFLX), Applied Materials (AMAT), and Crowdstrike Holdings (CRWD) closed up more than +5%.  Finally, Amazon.com (AMZN) and Splunk (SPLK) closed up more than +4%.

U.S casino stocks with exposure to Macau rallied Friday after China eased some pandemic travel restrictions.  Wynn Resorts (WYNN) closed up more than +8%.  Also, Las Vegas Sands (LVS) closed up more than +5%, and MGM Resorts International (MGM) closed up more than +3%.

U.S.-listed Chinese stocks moved higher after China eased some of its Covid Zero policies.  JD.com (JD) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, NetEase (NTES) closed up more than +4%, and Baidu (BIDU) closed up more than +3%.  Pinduoduo (PDD) and Alibaba Group Holding (BABA) closed up more than +1%.

Energy stocks and energy service providers rallied Friday, with the price of crude up more than +2%.  Occidental Petroleum (OXY) closed up more than +5%.  Also, Devon Energy (DVN), Marathon Oil (MRO), and Phillips 66 (PSX) closed up more than +4%.  In addition, Schlumberger (SLB), ConocoPhillips (COP), and Exxon Mobil (XOM) closed up more than +3%.

Walgreens Boots Alliance (WBA) closed up more than +7% to lead gainers in the Dow Jones Industrials after Deutsche Bank upgraded the stock to buy with a price target of $50.

Defensive stocks, such as healthcare companies and drugmakers, retreated Friday.  Cigna (CI) closed down more than -6%.  Also, Humana (HUM) and Elevance Health (ELV) closed down by more than -5%.  In addition, UnitedHealth Group (UNH) closed down more than -4% to lead losers in the Dow Jones Industrials.  Finally, Bristol-Myers Squibb (BMY) and Eli Lilly (LLY) closed down more than -4% 

Huntington Ingalls Industries (HII) closed down more than -6% after Bank of America Global Research downgraded the stock to underperform from neutral.

L3Harris Technologies (LHX) closed down more than -6% after Argus Research downgraded the stock to hold from buy.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Friday closed down -6.5 ticks.  Due to the Veteran's Day holiday, there was no cash Treasury market trading Friday. A jump in European government bond yields weighed on Dec T-notes, as the 10-year German bund yield rose +15.0 bp Friday to 2.160%.  T-notes recovered from their worst levels Friday on dovish comments from Boston Fed President Collins, who said the risk of overtightening has increased.

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