Stocks rallied across the board as Jerome Powell signaled a slowdown in the pace of tightening as early as December, while indicating more hikes to fight inflation. Bond yields slumped with the dollar.

Amid all the optimism, the S&P 500 hit a two-month high, notching the longest monthly winning streak since August 2021. The gauge also breached its 200-day moving average: a threshold seen by some analysts as heralding more gains. The Nasdaq 100 jumped about 4.5 per cent and the Dow Jones Industrial Average was up 20 per cent from its September low — meeting the bull-market definition.

Bond traders dialed back their expectations for how high they think the Fed might need to push its benchmark, with swap markets suggesting the key overnight rate might peak below 5 per cent.

Powell’s comments likely cement expectations for the Fed to hike by 50 basis points in December, following four straight 75 basis-point moves. Though he also noted that rates are likely to reach a “somewhat higher” level than officials estimated in September.

Comments:

• Callie Cox at eToro:

  • Powell just said what the market has been thinking all along. But before you get too excited, remember that this is a shift, not a pivot. Powell has been clear that rates could stay high for some time.
  • At this point, it may be time to start sowing seeds for the next bull market, but try not to get carried away. High rate environments favor quality companies that prove they can execute, so keep that in mind as you pile back into risky markets.

• Krishna Guha at Evercore ISI:

  • Most importantly for risk assets, Powell’s remarks embraced the return of some two-sided risk management. That is a big deal for equities and means an outsized move in stocks relative to the rates market is justified.
  • The caveat is that Powell’s tone can be unstable from one event to the next, and he might in retrospect judge that he was a bit too risk-friendly, given the risks associated with letting go of financial conditions too soon.

• Jeffrey Roach at LPL Financial:

  • Much of Chair Powell’s comments were benign and predictable. Overall, this speech will likely be bullish for the markets in the near term.

• Neil Dutta at Renaissance Macro Research:

  • Powell is giving the Fed an off-ramp to 75 basis point moves, but I don’t think you can rule out anything else. There is a reasonably strong chance the Fed extends 50 basis point hikes or 25 basis point hikes.

• Roberto Bagnato at Immobiliare Quadronno Srl:

  • This rally is a nonsense: Powell said they will slow down, but that rates will have to go higher than forecasted earlier. The market wants to listen only to the first part of Powell’s statement.

Traders also scoured several economic reports, with key gauges of U.S. activity painting a mixed third-quarter picture. Job openings fell in October — a hopeful sign for the Fed as it seeks to curb demand.

The figures precede Friday’s jobs report, which is currently forecast to show employers added 200,000 workers to payrolls in November. Economists are expecting the unemployment rate to hold at 3.7 per cent, and for average hourly earnings to moderate.

Key events this week:

• S&P Global PMIs, Thursday
• U.S. construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday
• BOJ’s Haruhiko Kuroda speaks, Thursday
• U.S. unemployment, nonfarm payrolls, Friday
• ECB’s Christine Lagarde speaks, Friday

Stocks

• The S&P 500 rose 3.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 4.6 per cent
• The Dow Jones Industrial Average rose 2.2 per cent
• The MSCI World index rose 2.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.7 per cent
• The euro rose 0.8 per cent to US$1.0408
• The British pound rose 0.9 per cent to US$1.2056
• The Japanese yen rose 0.4 per cent to 138.05 per dollar

Cryptocurrencies

• Bitcoin rose 3.8 per cent to US$17,083.33
• Ether rose 6.2 per cent to US$1,294.71

Bonds

• The yield on 10-year Treasuries declined 11 basis points to 3.63 per cent
• Germany’s 10-year yield was little changed at 1.93 per cent
• Britain’s 10-year yield advanced six basis points to 3.16 per cent

Commodities

• West Texas Intermediate crude rose 3.1 per cent to US$80.62 a barrel
• Gold futures rose 1.2 per cent to US$1,784.10 an ounce