Quiver Quantitative - The S&P 500 (SPY (NYSE:SPY)) and the Dow Jones Industrial Average (DIA) experienced a period of subdued trading, influenced by comments from New York Federal Reserve President John Williams. Williams' remarks tempered the market's recent enthusiasm regarding potential rate cuts in the upcoming year. Despite the Federal Reserve's decision to hold interest rates steady and indications of slowing inflation, Williams emphasized the ongoing focus on bringing inflation back to the 2% target, causing a reevaluation of the market's expectations for future Fed actions.
The market's reaction to these comments was evident, with the S&P 500 and the Dow fluctuating in response. However, the markets still anticipate a high likelihood of rate cuts in March and May 2023, as reflected in the CME Group's (NASDAQ:CME) FedWatch tool. This week's dovish stance overall has prompted a rally in equities, positioning the S&P 500 for its longest weekly winning streak since September 2017.
Market Overview:
-U.S. stocks see tepid gains on Friday as Fed's Williams cools rate-cut enthusiasm, but major indices track for weekly wins. -The S&P 500 eyes its longest weekly winning streak since 2017, buoyed by dovish pivot earlier this week. -Defensive sectors like utilities and real estate struggle, while tech giants like Microsoft (NASDAQ:MSFT) & Nvidia lift the Nasdaq (QQQ) -Investor sentiment remains cautious amid mixed messages from the Fed and volatile derivatives expiry.
Key Points: -New York Fed President John Williams' comments against aggressive rate cuts throw cold water on market optimism. -Money markets still price in high chances of rate cuts next year, reflecting a disconnect between Fed and investor expectations. -Despite the choppy session, major indices remain on track for weekly gains, driven by earlier dovish signals. -A survey suggests U.S. business activity picked up in December, potentially easing recession fears. -Upcoming "triple witching" expiry of derivatives contracts could add volatility to the market later in the day.
Looking Ahead: -The Fed's tightrope walk between controlling inflation and calming market anxiety will continue to influence investor sentiment. -Mixed economic data and potentially volatile derivatives expiry may lead to further market choppiness in the short term. -The S&P 500's attempt to extend its longest winning streak in years will be closely watched as a gauge of investor confidence.
On Friday, a survey indicating increased domestic business activity in December provided a positive outlook, possibly easing concerns of a significant economic slowdown in the fourth quarter. The trading session was also influenced by the "triple witching" event, the simultaneous expiration of stock options, index options, and futures, which could introduce additional volatility.
In terms of stock movements, notable changes included a rise in Costco (NASDAQ:COST) shares after strong first-quarter results and a decline in Darden Restaurants (NYSE:DRI) following a lower-than-expected annual same-store sales forecast. The tech sector, with companies like Microsoft (MSFT), Nvidia (NVDA), and Amazon (NASDAQ:AMZN), supported the Nasdaq's gains. Intel (NASDAQ:INTC) and Broadcom (NASDAQ:AVGO) also saw notable increases, with Broadcom reaching a new record high.
This article was originally published on Quiver Quantitative