FX.co ★ U.S. Stocks See Further Upside, Reaching New Record Highs

In a continuation of the robust rally from previous sessions, U.S. stocks once again demonstrated strength during Friday's trading, with the major indices securing yet another set of record closing highs. While the indices did slightly recede from their peak levels by the close, they maintained a firm presence in positive territory. Specifically, the Dow Jones Industrial Average advanced by 259.65 points, or 0.6%, closing at 43,988.99. Meanwhile, the Nasdaq Composite index edged up by 17.32 points, or 0.1%, finishing at 19,286.78, and the S&P 500 climbed 22.44 points, equating to a 0.4% increase to close at 5,995.54.

Over the course of the week, the Nasdaq, recognized for its tech-heavy composition, surged by an impressive 5.7%. The S&P 500 and the Dow followed suit, rising by 4.7% and 4.6%, respectively. The positive sentiment in the markets has been buoyed by the favorable response to former President Donald Trump's decisive win in the U.S. presidential race. Trump's anticipated return to office is broadly perceived as beneficial for U.S. businesses and the broader economy, notwithstanding some apprehensions about the potential inflationary impact of proposed tariff hikes.

Investor sentiment was also shaped by contemplation over the Federal Reserve's decision on Thursday to cut interest rates by a quarter percentage point. This follows a more aggressive rate reduction of half a percentage point in September. The Fed has now lowered its target range for the federal funds rate to between 4.50% and 4.75%. Nonetheless, Fed Chair Jerome Powell emphasized in his post-meeting remarks that the central bank does not adhere to a predefined path for rate adjustments and stressed a "meeting by meeting" approach to future decisions.

In economic developments, preliminary figures from the University of Michigan indicated a stronger-than-anticipated improvement in consumer sentiment for November. The university reported that its consumer sentiment index increased to 73.0, up from 70.5 in October, surpassing economists’ projection of 71.0. This rise marks the index's highest level since April, when it hit 77.2.

Regarding inflation, the report highlighted a slight reduction in short-term expectations, with year-ahead inflation forecasts dipping to 2.6% in November from 2.7% in October, the lowest since December 2020. Conversely, long-term inflation expectations nudged up to 3.1% from 3.0%, remaining relatively high compared to pre-pandemic levels.

Sector Analysis

Interest rate-sensitive stocks saw notable gains, as treasury yields continued their descent from previous peaks. This downward shift in the ten-year note yield particularly benefited sectors such as utilities, commercial real estate, and telecommunications. Conversely, the steel sector experienced significant declines, with the NYSE Arca Steel Index dropping 1.6% after achieving a seven-month high on Thursday. Oil service and gold stocks also faced headwinds, aligning with lower commodity prices.

International Markets

In international markets, Asia-Pacific stock markets delivered mixed performances on Friday. In particular, Japan’s Nikkei 225 Index rose by 0.3%, while China’s Shanghai Composite Index decreased by 0.5%, and Hong Kong’s Hang Seng Index fell by 1.1%. Meanwhile, major European markets ended the day lower. The French CAC 40 Index dropped by 1.2%, with both the U.K.'s FTSE 100 Index and Germany's DAX Index slipping by 0.8%.

Bond Market Movements

The bond market witnessed continued recovery, with treasuries extending gains from the prior session. Consequently, the yield on the benchmark ten-year note, which inversely correlates with its price, declined by 3.5 basis points to 4.306%.

Outlook

As the week ahead unfolds, market movements may be influenced by responses to upcoming U.S. economic data, including reports on consumer and producer prices, retail sales, and industrial production.