Mega-Cap Tech Drive U.S. Stocks Surge Amid Fed Rate Hike Concerns

U.S. stocks rallied strongly on Friday, November 10th, 2023, recovering from the losses in the previous session as treasury yields stabilized.

On Thursday, Federal Reserve Chairman Jerome Powell surprised the market by suggesting that interest rates might need to be higher to tame inflation, hinting at the possibility of another rate hike.

However, on Friday, all concerns seemed to dissipate as mega-cap tech stocks led the S&P to a seven-week high. Notably, the S&P broke above the 4400 level and the 100-day moving average, which many see as a bullish signal.

The Nasdaq 100 experienced its most significant climb since May, with Microsoft Corp. reaching a record high, and Nvidia Corp. extending gains for an eighth consecutive session.

Federal Reserve Bank of Atlanta President Raphael Bostic conveyed confidence that policymakers could bring inflation back to their target without the necessity for further rate hikes.

Conversely, his San Francisco counterpart, Mary Daly, suggested that the central bank might need to raise rates again if progress on inflation stalls despite a roaring economy.

Friday’s rebound was sufficient to propel the three major market averages to a second consecutive week of gains. The Nasdaq Composite surged by 2.4% for the week, the S&P 500 advanced by 1.3%, and the Dow Jones added 0.7%.

Here are the closing levels on Friday, November 10th, 2023:

Last  Change  Change% 
DOW JONES  34,283.10 +391.16 +1.15%
S&P 500 4,415.24 +67.89 +1.56%
NASDAQ 13,798.11 +276.66 +2.05%
U.S. 10Y 4.652%
VIX 14.17 -1.12 -7.33%

Following a strong performance the week before, stocks continued their positive momentum. Technical indicators and some analysts are now suggesting that the correction low may have been established.

The caution prevalent in equity markets over the past three months has transformed into “year-end greed,” fueled by expectations of a decline in U.S. bond yields, according to Bank of America Corp.’s Michael Hartnett.

Global stocks recorded inflows of $8.8 billion in the week through November 8th, based on EPFR Global data. Still, cash remains the preferred asset class, Hartnett said.

About $77.7 billion went into money market funds in the week, setting them up for record annual inflows of $1.4 trillion.

It is important to note that the rally is mainly due to the tech-heavy mega-cap stocks. In contrast, value stocks declined, small companies faced significant losses, and shares targeted by short sellers experienced their worst run since March.

While the S&P 500 gained more than 1% over the five days, including the best Friday rally since June, an equal-weight version, which effectively boosts the influence of non-mega caps, declined.

Small-cap companies in the Russell 2000, serving as a proxy for firms heavily reliant on bank financing, experienced their most substantial decline since September.

The ongoing conflict between cash-rich mega-cap stocks and the rest of the market remains a point of confusion.

The question persists: will the influential mega-caps uplift the market, or will the remaining companies exert a drag? Only time will reveal the answer.

Source: CBOE, Bloomberg

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.


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