Stocks Tread Water, Oil Falls on Demand Concerns: Markets Wrap

(Bloomberg) -- US equities were mixed and oil futures fell one day after Federal Reserve policymakers disabused optimistic investors of the notion that interest rates would abate soon. 

The S&P 500 Index was largely unchanged and the Nasdaq 100 slipped 0.5% as trading volumes remained roughly 20% below the 30-day average for the time of day during Friday’s $2.1 trillion options expiration.

Treasury yields rose a day after hawkish comments from St. Louis Fed President James Bullard, who said interest rates needed to rise at least to 5%-5.25% to curb inflation. Also on Thursday, Minneapolis Fed President Neel Kashkari said it was an “open question” how far the central bank has to go with rates to bring demand back into balance.

Relentlessly rising interest rates are alreday weighing on global demand. Growth-sensitive copper and oil prices were set for weekly losses on concerns about a worsening outlook. US crude futures signaled an oversupply for the first time in almost a year. Higher mortgage rates sent sales of previously owned US homes down for a record ninth straight month in October.

Yet some equity investors said hawkish commentary did not necessarily mean rates would peak levels higher than previously thought. Traders continue to bet that the Fed will reverse course and begin cutting rates in the later part of 2023. 

“Although it’s a moving target, today the market has made peace with the Fed and the continual push toward increased forward guidance on the peak for rates,” said David Donabedian, chief investment officer of CIBC Private Wealth US, said in an interview. “Markets are increasingly comfortable and realistic about a 5%, 5.25% funds rate emerging next year and that perhaps investors are seeing light at the end of the tunnel.”

Despite sobering comments by Fed policymakers and turmoil in the cryptocurrency world, the S&P 500 was headed toward a loss of just 1% on the week. 

“This week’s somewhat tight range might merely be a ‘breather’ that helps the market digest its recent gains before it heads higher,” Matt Maley, chief market strategist at Miller Tabak + Co., wrote. “Besides, Thanksgiving week tends to be a good one for the stock market.”

Chris Harvey of Wells Fargo expects the market to bounce around the 3,950 level until mid-December, when the next inflation print and Fed decision will provide traders with more clarity. But after that, the market trend will become “a ‘coin toss,’ with increasing evidence of an impending recession,” his team wrote in a note.

Hong Kong’s benchmark Hang Seng Index enjoyed a third straight week of gains, thanks to China’s steps to support the property sector and ease Covid restrictions. European stocks climbed on optimism over both China and bets that central banks will slow their rate hikes. 

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 1:42 p.m. New York time
• The Nasdaq 100 fell 0.5%, falling for the third straight day, the longest losing streak since Nov. 3
• The Dow Jones Industrial Average rose 0.2%, more than any closing gain since Nov. 10
• The MSCI World index fell 0.6% to the lowest since Nov. 10

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.3% to $1.0334
• The British pound rose 0.2% to $1.1887
• The Japanese yen was little changed at 140.30 per dollar

Cryptocurrencies

• Bitcoin fell 0.7% to $16,567.23
• Ether fell 0.1% to $1,203.95

Bonds

• The yield on 10-year Treasuries advanced five basis points to 3.81%
• Germany’s 10-year yield was little changed at 2.01%
• Britain’s 10-year yield advanced four basis points to 3.24%

Commodities

• West Texas Intermediate crude fell 3% to $79.21 a barrel
• Gold futures fell 0.5% to $1,768.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

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