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Dow jumps almost 750 points as equities rise, bond yields tumble after reports the Fed may switch to smaller rate hikes after November

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U.S. stocks closed sharply higher on Friday as investors weighed in on a report from the Wall Street Journal and comments from Federal Reserve officials suggesting the Federal Reserve may switch to smaller rate hikes after the November meeting.

According to Goldman Sachs, investors were also struggling with intraday volatility in equities as nearly $2 trillion worth of options on equities, indices and exchange-traded funds expire or expire on Friday.

How stock indices were traded
  • Dow Jones Industrial Average DJIA,
    +2.47%
    It closed at 31,082.56, up 748.97 points, or 2.5%.

  • S&P 500 SPX,
    +2.37%
    It finished at 3,752.75, up 86.97 points, or 2.4%.

  • Nasdaq Composites COMP,
    -0.81%
    It ended at 10,859.72, up 244.87 points, or 2.3%.

During the week, the Dow rose 4.9%, the S&P 500 4.7% and the Nasdaq 5.2%. All three indices posted their biggest weekly percentage gains since June, according to Dow Jones Market Data.

What moved the markets

U.S. stocks rallied as investors heed a report from The Wall Street Journal, with comments from San Francisco Fed chairman Mary Daly suggesting that the Federal Reserve could potentially begin to pull back a bit from its aggressive rate-raising pace later this year. ,

“We’re starting to hear some rumors that the Fed may at least mitigate the aggressive nature of the size of rate hikes,” Mona Mahajan, senior investment strategist at Edward Jones, said by phone on Friday. Markets said they were priced “very tight”, up 75 basis points both in December and next month.

While the US central bank appeared ready to raise the benchmark rate by three quarters at its policy meeting in early November, there may be some debate among Fed officials over whether to raise rates by 50 basis points in December.

“This is the first step of what we call the beginning of the end,” Mahajan said. “We would expect the pace of rate hikes to slow over time,” he said, followed by a pause at one point and then an assessment of inflation and where the economy is headed.

According to CME’s FedWatch tool, Fed funds futures traders on Friday noted that a 75 basis point increase in December is priced less likely, with rates dropping below 50% from 75% prior to the report.

Meanwhile, Treasury yields took a break from their recent climb, helping to take some of the pressure off equities. Yield of the two-year TMUBMUSD02Y Treasury bill,
4.504%
10-year yields were TMUBMUSD10Y, down 11.9 basis points to 4,489% on Friday.
4.228%
It fell a little more than a basis point to 4,212%, according to Dow Jones Market Data.

Ameriprise Financial chief market strategist Anthony Saglimbene said in a phone call Friday that ten-year and biennial returns have “increased dramatically over the past few days.” He worries the stock market’s strong rally on Friday may be an overreaction to “the assumption that the Fed could pause” rate hikes.

All three major U.S. stock benchmarks posted their biggest weekly percentage gains since June as investors continued to assess companies’ third-quarter earnings results. The Dow Jones Industrial Average rose 4.9%, the S&P 500 4.7% and the Nasdaq Composite 5.2%.

“Note that we had a good profit all week despite some one-off stories,” Mahajan said.

About 20% of companies in the S&P 500 index reported earnings for the third quarter, according to a report released Friday by John Butters, a senior earnings analyst at FactSet. Its rating shows that 72% of S&P 500 companies reported a “positive” surprise for earnings per share.

However, Snap Inc. SNAP shares,
-28.08%
It fell after a disappointing report on Friday.

To read: Snap’s advertising woes are turning the internet industry upside down, turning some of Wall Street’s biggest fears into reality

Investors were also following the options market.

A team of options strategists from the Goldman Sachs Group told clients that exchange-traded funds that open and track options linked to major stock indices have increased this year, while interest in single stock options has decreased.

This left the market vulnerable to large intraday swings on Friday as options sellers struggled to hedge their exposure to near-money options.

“Market makers or other options traders who hedge their positions are net long [at the money] Flow related to options, expiration can have the effect of lowering stock prices,” he said.

Companies in focus
  • Snap Inc. SNAP shares fell 28.1% after the company reported disappointing earnings and said it expected steady revenue growth for the fourth quarter.

  • A report that the US may be subject to the pending acquisition of Elon Musk Twitter Inc.
    TWTR,
    -4.86%
    Shares of the company plunged 4.9% in a national security review.

  • Shares american express company
    AXP,
    -1.67
    It fell 1.7% after the company highlighted “mixed signals” in the US economy, which helped stocks slide even as quarterly earnings beat Wall Street’s expectations.

  • Intel Corp.
    INTC,
    +3.41%
    Shares rose 3.4% after the company announced plans to announce “targeted” layoffs in November.

Live Market Blog: Today’s highlights of the stock market

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