Major US Stock Indexes Jump Over 1.5% in Sharp Reversal
In a dramatic turnaround, Wall Street witnessed a powerful rally on Friday, with all three major US stock indexes surging more than 1.5%. This sharp upswing was primarily fueled by growing investor optimism that the Federal Reserve might implement an interest rate cut as early as December, which helped counter ongoing concerns about inflated technology stock valuations.
Fed Rate Cut Bets Surge After Key Economic Data
The mood on Wall Street shifted significantly after fresh labour market data revealed an unexpected increase in the unemployment rate. With the recent government shutdown having deprived the Fed of official economic data, this new information was crucial. Financial markets quickly adjusted their expectations, with the probability of a third and final rate cut this year jumping to 73.3%, a substantial increase from just 39.1% the previous day, according to the CME's FedWatch tool.
Comments from monetary policymakers added to the mixed signals. While Dallas Fed President Lorie Logan advocated for holding rates steady, it was the remarks from New York Fed President John Williams that truly moved the markets. Ross Mayfield, an investment strategy analyst at Baird, noted, "New York Fed President Williams' comments seem to have shifted the perception on that December rate cut potential. Part of the reason for the move today is that Williams was seen as one of the hawkish leans, so the market could perceive it representing someone stepping over the line towards the dovish point of view."
Solid Earnings and Market Performance
Adding to the positive sentiment were robust earnings from companies at the forefront of the artificial intelligence boom, most notably chipmaker Nvidia. Their strong performance temporarily alleviated fears that the AI-related tech stocks, which have driven the market's rally for months, are overpriced and due for a correction.
By the closing bell, the Dow Jones Industrial Average had rocketed 723.78 points, or 1.58%, to 46,476.04. The S&P 500 climbed 105.55 points, or 1.61%, to 6,644.31, and the Nasdaq Composite advanced 383.16 points, or 1.75%, to 22,463.94.
In other markets, U.S. Treasury yields dipped as bets on a Fed rate cut rose. The benchmark 10-year note yield fell to 4.069%. The dollar was steady overall but weakened against the yen. Meanwhile, oil prices extended their decline for a third session, touching a one-month low. In contrast, gold reversed its losses, rising after the Fed comments boosted the likelihood of a rate cut.
Global Market Contrast and Weekly Outlook
The story was different in global markets. European stocks ended lower, logging a weekly decline due to persistent worries about stretched tech valuations. Similarly, emerging market and Asian shares, including Japan's Nikkei, closed significantly lower. This volatile session caps a tumultuous week, and despite Friday's strong performance, both U.S. and world stocks were still on track to end the week below where they started.
