US Stocks Trim Weekly Losses as Sentiment Calms: Markets Wrap

This content was published on December 20, 2024 - 19:28

5 minutes

(Bloomberg) — US stocks ticked higher in afternoon trading, paring weekly losses for major indexes after fresh data on Friday assuaged worries about inflation that had been whipped up by the Federal Reserve’s hawkish pivot earlier in the week.

The S&P 500 rose 1.5% and the Nasdaq 100’s gained as much as 2% on Friday. Bloomberg’s dollar gauge weakened. Treasuries rallied, with the US 10-year yield dropping five basis points to 4.51%.

The Fed roiled markets this week when it scaled back the number of cuts it anticipates next year. A stream of data showing how strong the economy is only validated the central bank’s view. With Fed Chair Jerome Powell’s focus on inflation progress, the muted personal consumption expenditures data for November will likely reassure policymakers — and investors — that the economy is cooling despite being robust.

“I don’t know why we always have to be reminded that the Fed not cutting rates — or not cutting rates as fast — is actually good news if it’s driven by stronger economic data, and that’s exactly what the Fed is telling us,” Art Hogan, chief market strategist at B. Riley Wealth, said in an interview, adding that the selloff after the Fed meeting was a “major overreaction.”

The Fed is now likely to wait and see how tariff and immigration policies unfold over the next coming months before implementing another cut, said Olu Sonola, Fitch Ratings’ head of US economic research. With the central bank facing these policy uncertainties from the incoming administration, odds still favor a pause on rate cuts in January, said Chris Larkin, managing director, trading and investing, E*Trade from Morgan Stanley.

Concerns are also growing about the implications of the Republican-led House rejecting a temporary funding plan backed by President-elect Donald Trump on Thursday, with a US government shutdown looming in less than 24 hours.

“The real problem is the shutdown, one wasn’t expecting this, it’s a surprise for the market, just as the Fed was a surprise, all in all this week is a difficult one,” said Jeanne Asseraf-Bitton, head of research and strategy at BFT IM in Paris.

Meanwhile, US consumer sentiment rose for a fifth month in December. The sentiment index continues to reflect an improving outlook among Republicans after November’s election, while Democrats grow more downbeat.

Friday’s US options expiration, which has historically stoked turbulence, offers a final hurdle to end-of-year calm. The quarterly “triple-witching” will see some $6.5 trillion worth of options tied to individual stocks, indexes and exchange-traded funds fall off the board, this year’s largest, according to an estimate from derivatives analytical firm Asym 500.

Brazilian markets bounced at the end of the week amid extraordinary central bank moves to curb a selloff in the currency. The real pared weekly losses.

Meanwhile, the UK’s long-term government borrowing costs are approaching the highest level since 1998 as investors struggle to work out how much the Bank of England will cut interest rates next year. In just one week, the market went from wagering on the possibility of four interest rate cuts next year to fewer than two, and then back to entertaining the chance of three.

In Asia, China’s one-year bond yield slumped to 1% for the first time since the global financial crisis, as traders ramped up bets on monetary easing.

The yen erased losses after Japan’s key inflation gauge strengthened for the first time in three months and Finance Minister Katsunobu Kato warned against currency speculation. A key gauge of Asian shares dropped for a sixth day.

Crude oil prices headed for a weekly decline.

Some of the main moves in markets:

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