Stocks See Support from Hopes For Dovish Fed Turn

Rich Asplund - Barchart - Fri Nov 11, 2022

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.27%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.49%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.64%. Stock indexes this morning are mixed, with the S&P 500 at an 8-week high and the Nasdaq 100 at a 7-week high.

U.S. stock indexes this morning are extending Thursday’s sharp rally, which occurred after a softer-than-expected U.S. Oct consumer prices improved the prospects for the Fed to slow its pace of interest rate hikes. Also, a jump of more than +4% in crude prices today is boosting energy stocks. There is no trading in the cash U.S. Treasury securities market today, which is closed for Veteran’s Day.

Global equity markets are also moving higher today 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.

The Dow Jones Industrials index is lower today on weakness in healthcare companies and drugmakers. Thursday’s sharp rally in the broader market has prompted some liquidation of defensive stocks, which outperformed this year as investors braced for the economic impact of sharply higher interest rates.

Bitcoin is down more than -2% this morning on concerns about crypto-contagion from the liquidity crisis that forced FTX.com to file for Chapter 11 bankruptcy today. Also, crypto lender BlockFi was pausing 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.

Today’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%.

Today’s stock movers…

U.S casino stocks with exposure to Macau are moving higher in pre-market trading after China eased some pandemic travel restrictions. Wynn Resorts (WYNN) is up more than +8% to lead gainers in the S&P 500. Also, Las Vegas Sands (LVS) is up more than +5%, and MGM Resorts International (MGM) is up more than +2%.

U.S.-listed Chinese stocks are climbing in pre-market trading after China eased some of its Covid Zero policies. JD.com (JD) is up more than +8% to lead gainers in the Nasdaq 100. Also, Pinduoduo (PDD) is up more than +5%, and NetEase (NTES) is up more than +4%. Baidu (BIDU) is up more than +2%, and Alibaba Group Holding (BABA) is up more than +1%.

Energy stocks and energy service providers are rallying today, with the price of crude up more than +4%. Devon Energy (DVN), Haliburton (HAL), and Occidental Petroleum (OXY) are up more than +5%. Also, APA Corp (APA), Marathon Oil (MRO), and Phillips 66 (PSX) are up more than +4%. Diamondback Energy (FANG) and Exxon Mobil (XOM) are up more than +3%.

Walgreens Boots Alliance (WBA) rose more than +2% in pre-market trading after Deutsche Bank upgraded the stock to buy with a price target of $50.

Defensive stocks, such as healthcare companies and drugmakers, are showing weakness. Cigna (CI) is down more than -7% to lead losers in the S&P 500. Also, Humana (HUM) is down more than -6%. Vertex Pharmaceuticals (VRTX) is down more than -5% to lead losers in the Nasdaq 100, and Elevance Health (ELV), Bristol-Myers Squibb (BMY), Cardinal Health (CAH), and Molina Healthcare (MOH) are also down more than -5%. UnitedHealth Group (UNH) is down more than -4% to lead losers in the Dow Jones Industrials, and Centene (CNC) is down more than -4%.

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are down by -12 ticks. There is no cash Treasury market trading today due to the Veteran's Day holiday. A jump in European government bond yields today is weighing on Dec T-notes, with the 10-year German bund yield up +12.6 bp to 2.136%.

The dollar index (DXY00) this morning is down by -1.08%. The dollar this morning extended Thursday’s sharp losses and sank to a 2-3/4 month low. Negative carry-over from Thursday’s weaker-than-expected U.S. Oct CPI report is weighing in the dollar on speculation the Fed will ease its pace of interest rate hikes.

EUR/USD (^EURUSD) today is up by +0.81%. EUR/USD today climbed to a nearly 3-month high on dollar weakness and a jump in European government bond yields. The 10-year German bund yield rose +12.6 bp today after the European Commission raised its 2022 and 2023 Eurozone CPI forecasts.

USD/JPY (^USDJPY) today is down sharply by -1.11%. The yen today added to Thursday’s sharp gains and posted a 2-1/4 month high against the dollar. The yen is climbing on fund short covering as the dollar sinks on speculation the Fed will slow its pace of interest rate hikes after Thursday’s news showed U.S. Oct CPI rose less than expected.

December gold (GCZ2) this morning is up +8.9 (+0.51%), and December silver (SIZ22) is down -0.157 (-0.72%). Precious metals prices this morning are mixed, with gold climbing to a 2-1/2 month high. A plunge in the dollar index to a 2-3/4 month low today is bullish for metals prices. Gold prices also found support after the University of Michigan U.S. Nov 5-10 year inflation expectations rate unexpectedly rose +0.1 to 3.0%, which boosted demand for gold as an inflation hedge. Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Thursday.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.