US stock indices surge into week's end
US stock index futures were firmer in early trade this morning. They were firmer in early trade yesterday morning too. But that didn’t stop them turning lower as the session progressed. Yesterday’s move saw the S&P 500 hit lows last seen on Friday, 20th December when investors were dumping stocks following the Fed’s ‘hawkish rate cut’ from the previous Wednesday. It was a similar story for all the US majors yesterday, and, to show that the sell-off was tech-led, the NASDAQ 100 fell back to levels last seen at the end of November. The lows were hit early evening European time. After that, the US indices recovered somewhat, ending the day with modest losses, although, as yesterday, the mid-cap Russell 2000 managed to creep into positive territory. Does this week’s stock market behaviour provide clues for the rest of the year? Probably not. It’s fair to say that much of the recent volatility and downside pressure comes as a result of year-end window dressing and fund rebalancing, as managers shift their weightings between equities and bonds. This became necessary due to weakness in the bond market since mid-September (ironically just after the Fed slashed rates by 50 basis points) contrasting with strength across equities going back to October 2023. So we’ll have to see how things go for the rest of this month, particularly once we get past Trump’s inauguration on 20th January. At the time of writing (just after the European close again) US stock indices are staging an impressive rally and on their highs. It’s probably too late for the S&P to complete a full ‘Santa Rally’, as that would require an upward move of over 150 points today. The yield on the 10-year is back up to 4.58% this afternoon, although equity buyers don’t seem too concerned. While elevated yields may indicate expectations of stronger economic growth, rather than simply an inflation bounce, they’re also a response to the US’s budget deficit, and the prospect of the huge Treasury issuance required to cover it.
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