The FED should be more flexible and Wall Street reacts positively
Wall Street ended higher on Monday, October 24, turning the tables after the rebound on Friday, October 21, on the market well oriented by rather satisfactory corporate results and the prospect of a possible deceleration of the U.S. central bank (Fed) at year-end.
The Dow Jones index gained 1.34%, its highest in a month and a half, the Nasdaq index rose 0.86%, and the broader S&P 500 index took 1.19%. “U.S. stocks advanced, buoyed by the idea that the Fed will hit the brakes after next week’s meeting,” said Edward Moya of Oanda.
Since the end of September, Wall Street has experienced repeated air holes. Bond rates stabilized on Monday, October 24. The 10-year U.S. government bonds yield stood at 4.24%, compared with 4.21% on Friday, October 21. However, the three-month rate, which is a close indicator of short-term monetary policy expectations, rose above 4% for the first time in 15 years.
It is thus almost in line with the scenario of a further 0.75 percentage point increase in the Fed’s key rate at the next meeting, which would bring it to a range of 3.75% to 4%.
The PMI for industrial activity in the United States fell sharply in October to 49.9 points from 52.0 in September, its lowest level in 28 months, at the start of the coronavirus pandemic. As for the PMI for the services sector, it too recorded a marked contraction.
Both indicators support the view that the U.S. economy is going backwards, which could prompt the Fed to change its course. For Andy Kapyrin of Regent Atlantic, the start of the earnings season is proving to be “less bad than the market expected”, which “fuels confidence” among investors.
Specialists are “hopeful that this crucial week for tech will also be good”, with Microsoft and Alphabet reporting on Tuesday, October 25, Meta on Wednesday, October 26, and Amazon and Apple on Thursday, October 27. Before opening the ball, Microsoft (+2.12%) and Alphabet (+1.47%) were sought after Monday, October 24.
Although these two sessions removed consecutive, Wall Street does not get carried away. “To me, this is a contrarian momentum,” says Nick Reece of Merk Investments. In the medium term, the market “will again fall to its lows” of the year and “the economy will enter a recession next year,” he says.
Also, the health sector has distinguished itself with the health insurer UnitedHealth (+1.47%), the biotech Amgen (+3.72%) or the pharmaceutical group Merck (+1.72%). Twitter (+3.27% to 51.52 USD) has started a decisive week for the platform.
The Delaware court in charge of the litigation with Elon Musk, gave the entrepreneur until Friday evening, October 28, to finalize the acquisition of the social network. “We continue to believe that the transaction will happen this week,” had written Friday analysts at Wedbush Securities.
Sign that investors favour the hypothesis of finalization of the acquisition, the price of the group with the blue bird is now close to the price proposed by Elon Musk, that is to say, 54.20 USD the share. On the other hand, Tesla has declined (-1.49% to 211.25 USD), the only Nasdaq stock to finish in the red.
Some investors and analysts are concerned about the possible sale of new shares by Elon Musk, CEO of the electric vehicle manufacturer, as well as possible interference of the Twitter case in the management of the group.
Chinese companies listed on Wall Street had a very bad day after the re-election of Chinese President Xi Jinping on Sunday, October 23. Alibaba fell by 12.51% to 63.15 USD, while JD.com (-13.02%) and Pinduoduo (-24.61%) also plunged. The same trajectory for Yum China (-13.96%), which controls KFC, Taco Bell and Pizza Hut in China.
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