Investors regain confidence in US stock market as Treasury yields stabilise

Investors showed confidence in the US stock market after a month-long selloff. Stocks and bonds have had a tight relationship in recent months, with equities falling as Treasury yields rose to a 16-year high. Higher yields make stocks more investment competitive and raise the cost of capital for companies and households.

However, the dynamics have reversed after the news of US government borrowing being smaller than expected and signals that the Federal Reserve is nearing the end of its rate hike cycle.

Also read: 6 things that changed for the stock market overnight

The recent stability in Fed rates helped the other asset classes, leading investors to focus on performance through the end of the year.

Yields on the benchmark 10-year US Treasury, which move inversely to bond prices, are down about 35 basis points from 16-year highs in October. Meanwhile, the S&P 500 rose 5.9% in the past week, its biggest gain since November 2022. The index is down about 5% from its July peak, although it is up nearly 14% year to date until now.

Also read: US Fed Policy: FOMC votes unanimously to keep key rates unchanged at 5.25-5.5% for second straight meeting

Moreover, active money managers’ exposure to equities is at its lowest level since October 2022, presenting an attractive opportunity for contrarian investors.

The stock recovery has been fueled by an extremely sold market, a strong economy, and a dovish stance by the Federal Reserve.

US employment data adds to dovish sentiment, suggesting the labor market is cooling and supporting the case for the Fed to hold off on further rate hikes.

US employment data showed a slight gain in the unemployment rate and the smallest wage increase in 2-1/2 years, suggesting the labor market is cooling, adding to the case for the Fed to keep its hand The S&P 500 closed up 0.9% on the day.

Of course, plenty of investors are hesitant to return to straight stocks just yet. The bellwether technology was Apple Inc. Thursday was the latest of the market’s giant tech and growth stocks to offer a lackluster outlook. The iPhone maker gave a holiday sales forecast that fell short of Wall Street estimates. At least 14 analysts cut their price targets for the stock, according to LSEG.

(With inputs from Reuters)

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Updated: 05 November 2023, 02:30 PM IST

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