Global Stocks Surge as Fed Rate Cut Expectations Rise

Global stocks experienced a notable upswing on November 14, 2023, marking a third consecutive day of gains. Investor optimism was fueled by expectations that the U.S. Federal Reserve would announce interest rate cuts during its upcoming December meeting. Concurrently, U.S. Treasury yields declined, contributing to the positive market sentiment.

On Wall Street, equities were predominantly higher, driven by significant gains in technology giants such as Alphabet Inc. and Meta Platforms Inc.. Alphabet’s shares reached an intraday record high of $328.83, reflecting a rise of over 1 percent as the company approached a market capitalization of $4 trillion. This milestone would position Alphabet among only four companies to achieve such a valuation. Meanwhile, Meta Platforms saw an increase of approximately 3 percent, emerging as the largest contributor to the S&P 500 index. Reports suggest that Meta is in negotiations with Alphabet to invest billions in chips for its data centers, with plans starting in 2027.

Investors were also digesting a range of economic data, some of which had been delayed due to the recent U.S. government shutdown lasting 43 days. According to the U.S. Commerce Department, retail sales rose by 0.2 percent in September, following an unrevised gain of 0.6 percent in August. This figure fell short of the 0.4 percent increase anticipated by economists surveyed by Reuters. Additionally, data from the U.S. Labor Department indicated that the Producer Price Index (PPI) for final demand rose 0.3 percent after a 0.1 percent decline in August, aligning with market expectations due to rising energy costs and the passing of tariffs to consumers.

Recent figures from ADP revealed that U.S. private employers cut an average of 13,500 jobs during the four weeks ending November 8, adding another layer of complexity to the economic landscape. Reflecting this positive market momentum, the Dow Jones Industrial Average surged by 546.82 points, or 1.18 percent, to close at 46,995.09. The S&P 500 rose by 45.45 points, or 0.68 percent, finishing at 6,750.53, while the Nasdaq Composite gained 80.42 points, or 0.35 percent, closing at 22,952.43.

The rally in equities has been largely attributed to comments made by John Williams, President of the New York Federal Reserve, who indicated that interest rates could decline in the near term. This sentiment was echoed by Mary Daly, President of the San Francisco Federal Reserve Bank, and Christopher Waller, a member of the Fed’s Board of Governors, who supported the idea of a rate cut in December. “We’ve had more coalescing just in the last couple of days around rate cut odds, that’s fluctuated dramatically in the last week,” said Bill Merz, head of capital market research at U.S. Bank Wealth Management. He highlighted that the recent softening in labor markets should be a critical factor for Federal Reserve voting members.

As the U.S. approaches the Thanksgiving holiday on November 23, trading activity is expected to diminish, with markets closing early on November 24. On the global front, the MSCI index, which tracks stocks worldwide, increased by 7.72 points, or 0.79 percent, reaching 990.03 and poised for its largest three-day percentage gain in a month. The pan-European STOXX 600 index also experienced a rise of 0.91 percent, buoyed by the anticipated Fed rate cut and optimism regarding a potential ceasefire in Ukraine.

U.S. Treasury yields fell following the release of economic data, with the yield on benchmark 10-year notes decreasing by 3.8 basis points to 3.998 percent, marking its first drop below the 4 percent threshold since October 29. Market participants are now pricing in an 84.7 percent probability of a 25 basis-point rate cut by the Federal Reserve at its December meeting, up from 84.4 percent in the previous session, and significantly higher than the 50.1 percent probability observed a week prior.

In the currency markets, the dollar index, which evaluates the U.S. dollar against a basket of currencies, fell by 0.48 percent to 99.72. The euro appreciated by 0.49 percent to $1.1577, while the British pound rose by 0.77 percent to $1.3204 in anticipation of Britain’s budget announcement scheduled for November 15. Traders are also monitoring potential Japanese intervention in the yen, which strengthened by 0.64 percent against the dollar, currently valued at 155.93, although it remains down by 1.3 percent for the month.

In the commodities sector, U.S. crude oil prices declined by 1.61 percent to $57.89 per barrel, while Brent crude fell by 1.53 percent to $62.40 per barrel. This drop follows indications from Ukraine supporting a U.S.-backed framework aimed at resolving the ongoing conflict with Russia.

As investors navigate through these fluctuating economic signals, the anticipation surrounding the Fed’s monetary policy decisions continues to shape market dynamics.