S&P rally ends

10 nov 2023

The NASDAQ and S&P 500 have both enjoyed their longest run of positive gains in two years. But the rally smashed into a brick wall last night. There had been a strong start to Thursday’s session which saw the S&P come within a few points of 4,400, a gain of 7% in under a fortnight. But Federal Reserve Chair Jerome Powell upset the apple cart during a speech yesterday evening. He stated that the Fed wasn’t confident that it had done enough to tame inflation leaving the door open for further rate hikes. This wrongfooted traders who had convinced themselves that the US central bank was done hiking rates. It now looks as if that was wishful thinking. At the beginning of the month the FOMC announced that it was keeping rates on hold for the second successive monetary policy meeting. Despite a lack of dovish comments in either the accompanying statement, or during Mr Powell’s press conference, stock indices rallied hard. Once again, it is the Fed that is sticking to its line in warning about inflation and stating that it’s too early to plan any rate cuts. And once again the market failed to take them seriously. Bond yields shot up, as did the US dollar.

But it’s been a relatively mild sell-off across equities so far, and totally reasonable given the size and pace of the rally over the past two weeks. Stock indices could have further to fall before they find decent support. But overall little has changed in terms of outlook. While an increase in bearish sentiment is inevitable, if that gets shrugged off early next week, then expectations for a rally into the year-end could rise again.