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28.11.2024 10:38 AM
Yesterday's trading on Wall Street ended with losses for all major indices, with the Nasdaq among the leaders of decline. The tech sector suffered significant losses ahead of Thanksgiving as traders grew concerned that the Federal Reserve might back off from aggressive rate cuts amid lingering inflation concerns.
The U.S. economy posted solid growth figures, with consumer spending data showing a strong increase in October. However, despite the positive results, efforts to reduce inflation appear to be running into trouble, adding to traders' concerns that the Federal Reserve could take a more cautious stance on interest rates.
Traders on CME's FedWatch platform have increased their bets by 25 basis points, according to the latest calculations, in anticipation that the Federal Reserve will cut rates at its December meeting. However, rates are expected to remain unchanged in January and March.
Investors are also concerned about the new possible economic consequences of President-elect Donald Trump's statements, who proposed introducing new tariffs on goods from Mexico, Canada, and China. These measures will remain in place until countries take the necessary steps to combat illegal migration and drug trafficking. In particular, Trump announced 25% tariffs on Mexican and Canadian imports and 10% on Chinese goods if countries do not take action against fentanyl and illegal migrants.
Economists at Goldman Sachs expressed concern about the possible long-term consequences of this approach. In their recent report, they warned that further escalation of tariff policy could delay inflation's return to the 2% target. These risks put additional pressure on markets, increasing uncertainty in the economic situation.
So, amid strong economic data, trade threats and uncertainty over Fed policy, investors continue to search for clear guidance, which in turn continues to influence the behavior of markets.
On Wall Street, indices closed lower on Wednesday, weighed down by strong economic data and concerns about the future policy of the Federal Reserve. The Dow Jones Industrial Average (.DJI) fell 138.25 points, or 0.31%, to close at 44,722.06. The S&P 500 (.SPX) lost 22.89 points, or 0.38%, to close at 5,998.74. The Nasdaq Composite (.IXIC) was the biggest loser, falling 115.10 points, or 0.60%, to 19,060.48.
Global markets also under pressure
It wasn't just U.S. stock indexes that suffered a decline. The MSCI index, which tracks global markets (.MIWD00000PUS), lost 0.10%, falling 0.84 points to 858.24. In Europe, the STOXX 600 (.STOXX) ended the day down 0.19%, also confirming the trend of global market sentiment weakening.
Stocks of major players in the tech sector attracted particular attention in the markets. For example, Dell (DELL.N) shares fell 12% after the company published disappointing forecasts for quarterly results. HP (HPQ.N) shares also fell 6%, weighing on the overall sentiment in the information technology sector. The sector's index (.SPLRCT) fell 1.2%, highlighting the weakness of the leading tech giants.
The biggest tech companies were not spared the negative trends either. Nvidia (NVDA.O) and Microsoft (MSFT.O) shares showed significant declines, which exacerbated the overall decline in the sector. The Philadelphia SE Semiconductor Index (.SOX) lost 1.8%, showing a weak performance for one of the most profitable industries.
At the same time, the Russell 2000 index (.RUT), which tracks small company stocks, was a bit on the sidelines of the general decline. After a record high earlier in the week, the index rose by 0.1%, which was the only positive moment among the major stock indices on the trading day.
So, the latest trading on Wall Street demonstrated restraint among investors. Amid uncertainty related to possible decisions of the Federal Reserve and the state of the global economy, market participants tend to be cautious. Amid weak forecasts for the largest tech companies and uncertainty around tariff policy, the influence of these factors continues to affect investor sentiment.
Markets continued to demonstrate restrained sentiment despite positive economic data. Investors were closely watching reports that showed the U.S. economy continued to grow at a solid pace in the third quarter. Notably, new jobless claims fell again last week, bolstering expectations that the Federal Reserve could cut rates in December.
However, despite the strong macroeconomic data, inflation remains under pressure. Scott Welch, chief investment officer at Certuity, noted that inflation was slightly above the Fed's desired levels, casting doubt on the possibility of further rate cuts. In his view, this could force the Fed to adopt a more cautious stance.
Trump Tariff Policy: A New Challenge for the Economy
Investors are also concerned about the possible impact of President Donald Trump's tariff policy. Welch stressed that if the proposed tariffs are implemented, they could exacerbate inflationary pressures, which in turn would complicate the task for the Fed, which must balance economic data with the policy initiatives of the new administration.
Uncertainty at the Fed meeting: Will rates be cut?
The minutes of the Federal Reserve's November meeting, released on Tuesday, showed that Fed members remain divided on the issue of future rate cuts. Despite the positive data, they are still unsure how much current rates are constraining economic growth and what approach to take in response to inflation threats and external risks.
Despite these difficulties, the S&P 500 continues to gain strength, heading for its biggest monthly gain in all of 2024. The reading also marked the sixth straight month of gains in seven months, underscoring positive expectations about the impact of President Trump's economic policies on local businesses and the broader economy.
Not all sectors of the market are seeing positive results, however. Workday (WDAY.O) shares fell 6.2% after the company reported weaker-than-expected subscription revenue guidance. Weak customer spending on its human capital management software weighed on the stock and the broader tech sector.
Overall, the market remains in a state of uncertainty, given both economic factors and political risks related to U.S. foreign trade policy. The Federal Reserve, in turn, will be forced to find a balance between supporting growth and controlling inflation, which will be an important factor in determining the future direction of the stock market in the coming months.
The New York Stock Exchange saw a predominance of positive sentiment among stocks on Wednesday. The number of advancing stocks significantly outnumbered the decliners, with a ratio of 1.64 to 1. At the same time, the number of new highs on the NYSE reached 406, while there were only 54 new lows. This indicates that most stocks on the exchange continued to move higher.
The S&P 500, in turn, noted 79 new 52-week highs, while not recording a single new low. This confirms the resilience of the index's main stocks. The Nasdaq Composite demonstrated even more noticeable growth, recording 136 new highs and 71 new lows, which also reflects positive sentiment in the tech sector.
Trading volume on US exchanges ahead of the holidays was 11.40 billion shares, below the average of 14.92 billion shares over the past 20 trading days. This decline in activity is understandable: investors, anticipating the holidays, have become cautious, which has affected the overall volume of transactions.
The world is seeing an outflow of capital from global markets. The MSCI index, which tracks the dynamics of global stocks, fell. The dollar also weakened, leading to a drop in US Treasury yields. This trend was caused by investors' reaction to the latest economic data and the possible impact of policy decisions by the new US administration, including the threat of tariffs.
Oil prices held steady after an unexpected increase in US gasoline inventories. Investors continued to monitor the outlook for US interest rates in 2025, which also put pressure on black gold quotes. At the same time, the easing of geopolitical tensions in the region, associated with the ceasefire agreement between Israel and Hezbollah, helped ease concerns about oil supplies.
However, trade risks remain high, including due to the expected actions of the new US administration. The introduction of new tariffs, according to analysts, could put inflationary pressure on the Fed's stance in terms of regulating interest rates. Investors continue to closely monitor every step of the administration, which introduces an element of uncertainty into market expectations.
Thus, markets remain under the influence of several factors: economic data, expectations of changes in interest rates, as well as geopolitical and trade risks. In the face of such uncertainties, investors are cautious, which affects activity on US exchanges and other global markets.
Stocks on the stock market lost some ground after the release of fresh economic data that showed a notable increase in US consumer spending in October. Despite the growth in economic activity, which points to continued dynamism in the economy, the slowdown in inflation has stalled in recent months. In particular, core inflation, which the Federal Reserve uses to regulate monetary policy, was 2.8% for the year to October, up 0.1% from September.
While the inflation increase was slightly higher than expected, experts stress that it was not a shock to the markets. Peter Cardillo, chief economist at Spartan Capital Securities, said: "We all expected inflation to rise a little bit, but it is under control, and that is the most important thing." As a result, many analysts continue to view the prospect of a 25 basis point Fed rate cut in December as likely, which could slow the rate hike and give markets a boost.
Traders' reactions to the economic data were muted, but with a strong outlook for the future. According to CME Group's FedWatch tool, the likelihood that the Federal Reserve will cut rates in December has increased to 70%. That's up from 59% the previous day, reflecting investors' faith in continued accommodative monetary policy amid subdued inflation.
However, fresh threats from President-elect Donald Trump have added to the volatility in markets. On Monday evening, he promised to immediately impose a 25% tariff on all goods coming from Mexico and Canada, and an additional 10% on Chinese goods, if his demands are not met. These threats have triggered a strong reaction, foreshadowing possible retaliatory measures from these countries, which poses additional risks to global trade relations.
For investors, the threat of Trump's tariff policy has become a new uncertainty that they will have to face. Amid global economic instability and the threat of trade wars, many traders are beginning to rethink their strategies. Relationships with key trading partners such as China and North America can have a significant impact on the future dynamics of the economy and inflation, as well as the Federal Reserve's rate decisions.
Thus, economic data, rising consumer spending and Trump's announcement of a tightening tariff policy have become important factors determining the course of the markets in the coming weeks.
Markets were subject to strong swings on Wednesday, and, as Alex Athanasiou, portfolio manager at Glenmede Investment Management, notes, these movements were likely driven by reduced liquidity amid the upcoming Thanksgiving holiday in the US. After the end of trading on Thursday, which will be a shortened day, an even shorter session will follow on Friday, which will limit the activity of traders and investors.
Amid these market swings, US Treasury yields also showed a decline. Benchmark 10-year yields fell 5.4 basis points to 4.248% from 4.302% the previous day, while 30-year yields fell 5 basis points to 4.4298%. Two-year yields also fell 3.1 basis points to 4.223%, suggesting continued weakness in longer-term assets amid uncertainty.
Forex markets were in flux, with the dollar index, which measures the greenback against several other major currencies, falling 0.73% to 106.06. The dollar's weakness came as the euro and pound rose, suggesting a shift in investor sentiment.
The dollar also weakened against the Japanese yen, falling 1.3% to 151.11 yen per dollar. This was the highest for the Japanese currency in five weeks, reflecting differences in monetary policy between Japan and the United States.
For its part, the euro rose 0.75% to $1.0565, while the pound sterling gained 0.85% to $1.2675. The moves were driven by changing expectations for the global economic situation and the outlook for rates in Europe and the United Kingdom.
In Latin America, the Mexican peso recovered from Tuesday's decline, gaining 0.3% against the dollar. The Canadian dollar also strengthened slightly, gaining 0.21% against the greenback.
Thus, the markets continue to show volatility ahead of the holidays, with the dollar clearly weakening and European and Asian currencies rising.
After four days of correction, the largest cryptocurrency, Bitcoin, has started to show signs of recovery. Yesterday, it increased by 5.34%, reaching $96,544, a significant step down from its all-time high of $99,830. However, Bitcoin has not yet returned to its all-time highs, and its further movements depend on a variety of factors, including global economic trends and investor sentiment.
Oil prices continued to fluctuate between negative and positive territory, which was a consequence of the instability in the markets. On Tuesday, oil continued to decline after the ceasefire agreement between Israel and Hezbollah was confirmed. The oil market saw a significant sell-off on Monday in anticipation of the agreement, which appears to have affected short-term price movements.
U.S. crude oil fell 0.07% to $68.72 per barrel, while Brent crude rose slightly, up 0.03% to settle at $72.83 per barrel. These movements highlight market uncertainty and investor reactions to global geopolitical news.
Amid economic and political uncertainties, gold continues to attract investor attention. Spot gold prices increased 0.17% to $2,636.35 per ounce, while U.S. gold futures jumped 0.61% to $2,637.20 per ounce. Investors are looking to precious metals as a safe haven amid market volatility and rising risks.
With uncertainty surrounding potential tariffs, oil producers in Canada and Mexico could find themselves in a tough spot. Analysts suggest that if tariffs are imposed on crude oil imports from these countries, companies will be forced to reschedule their supplies to Asia and possibly lower their prices to remain competitive in the global market.
Despite volatility in the broader financial sector, some segments of the economy performed positively. The consumer staples sector grew 1.9%, while the non-consumer staples sector increased 0.8%. In addition, the utilities sector also gained 0.9%, which may indicate continued interest in these stable and predictable market segments in the face of economic uncertainty.
As such, global markets continue to adjust to changes caused by the geopolitical situation and domestic economic factors.
Canadian 10-year yields continued to decline, falling 5 basis points to 3.236%. This was the fourth consecutive day that yields have declined. The trend likely reflects investor caution amid uncertainty in global markets and expected economic changes.
Shares in Canadian fuel distributor Parkland Corp (PKI.TO) jumped 5.1% after the company announced it would launch a share buyback program. Such an initiative is often seen as a signal that the company is confident in its financial health and willing to return funds to investors, which can support the share price.
Convenience store operator Alimentation Couche-Tard (ATD.TO) was also in the spotlight, with its shares gaining 4.3%. The sharp rise came as several analysts raised their price targets for the stock, likely due to positive expectations for further growth of the company's business on the back of expansion and improving financials.
As such, Canadian markets continue to show activity across sectors from bonds to large corporates, confirming dynamic development even in the face of economic uncertainty.
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*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.
