US Stock Diary｜Interest rate cut expectations increase, three indexes raise gold price to new high

The Wall Street stock market performed well. The Dow Jones hit another high this year on the first trading day in December, closing nearly 300 points higher and rising more than 800 points in two days. The market rose and fell within a narrow range in the morning session. Federal Reserve Chairman Powell tried to curb the recent increasing expectations of interest rate cuts, but the market trend became more easing and strengthened significantly in the afternoon. The bond market continued to rise, with the 10-year Treasury bond interest rate falling by 12 points, and the 2-year interest rate that is sensitive to short-term interest rates once fell by 16 points. The U.S. dollar continued to weaken, and the price of gold rose again. Both New York gold futures and spot gold hit record highs again. To sum up the week, all three major indexes recorded gains, rising for five consecutive weeks. Among them, the Dow Jones Industrial Average rose 2.4%.

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Market conditions on December 1 (Friday)

l The Dow Jones index rose 294.61 points, or 0.82%, to 36,245.50 points. To sum up the week, the Dow rose 2.42%.

l The S&P 500 index rose 26.83 points, or 0.59%, to 4,594.63 points. It rose 0.77% this week.

l The Nasdaq index rose 78.81 points, or 0.55%, to 14,305.03 points. It rose 0.38% for the week.

l New York January oil futures closed at US$74.07 a barrel, down US$1.89 or 2.5%. It fell 1.9% for the week, falling for six consecutive weeks.

l New York February gold futures closed at US$2,089.7 an ounce, up US$34.1, or 1.6%.

l The U.S. 10-year Treasury bond yield closed at 4.226%, down 12.6 points.

Large technology stocks developed individually. After Tesla’s Cybertruck began delivery, its stock price fell for two consecutive days. Dell dropped 50%, as major banks downplayed its share price, saying it would be dragged down by the slump in the personal computer industry. Intel fell 2.1%.

Interest-rate-sensitive public utility stocks and real estate stocks became the engines of market growth. Pharmaceutical stocks were stagnant, with Pfizer down 50%. The weight-loss drug it developed has many side effects and will not enter the third phase of clinical research. Eli Lilly and Novo Nordisk fell 1% after European authorities asked them about possible suicide risks associated with their diet pills.

Powell chilled expectations of an interest rate cut, saying “it is too early to believe that government policies will have enough restraint on the economy, or to say when they can be relaxed.” Instead, he said that if appropriate, “we can further tighten policies at any time.”

However, his tone has also changed compared with his remarks at the interest rate meeting early last month. He latest said that the current tightening actions have pushed interest rates “deeper” into restrictive areas. Powell reiterated that the risks of insufficient or excessive tightening are becoming more balanced.

The interest rate futures market shows that market expectations for interest rate cuts have further increased. More than 60% of investors expect an interest rate cut at the meeting in mid-March next year, and nearly 90% expect the least one interest rate reduction at the meeting in early May, becoming the mainstream opinion.

The Wall Street Journal, which is well-informed about the Federal Reserve, commented before Powell’s speech, pointing out that recent speeches by several Fed officials showed that even if they choose not to raise interest rates in mid-December, officials will not explicitly say that the interest rate hike cycle is over because of data. They have not yet been given the confidence to do so, so words and actions will continue to be cautious. Commentators believe that the Bureau will also maintain the hawkish guidance that the next interest rate adjustment may be an interest rate increase rather than an interest rate cut.

In fact, more and more data show that the U.S. economy is slowing down. The Purchasing Managers Index (PMI) of the Institute of Supply Chain Management (ISM), the manufacturing index remained at 46.7 in November, which was below 50 for 13 consecutive months, indicating that the industry has been shrinking. , the length is the first in 20 years. The previous day’s announcement that the number of people continuing to apply for unemployment benefits jumped to the highest level in about two years, and that average hourly wages only increased by 0.1%, is more likely to indicate that the job market, which has been strong after the epidemic, is also slowing down.

Bank of Montreal capital markets strategists recently pointed out that the sharp rise in U.S. Treasury bonds throughout November not only reflects the progress the Federal Reserve has made in restoring price stability and balancing supply and demand in the labor market. Investors were quick to discuss when the U.S. central bank would cut interest rates for the first time, while statements from officials continued to clash, trying to send the message that a rate cut would not be on the agenda anytime soon.