Overnight Market Wrap: 8 November 2022

Overnight Market Wrap: 8 November 2022

Key Points:

  • Socks Rally for Second Day Ahead of US Midterms

US shares rose in a broad-based rally that swept up small caps as well as blue-chip stocks, ahead of midterm elections and inflation data later this week. The dollar fell with Treasuries.

The S&P 500 closed near session highs, with all but three of the 11 industry groups advancing. The tech-heavy Nasdaq 100 also caught bids, while the Dow Jones Industrial Average outperformed, rising as much as 1.5% with health-care names topping the leader board. The Russell 2000 rallied, reversing losses in afternoon trading.  

Stocks gained for a second day ahead of US midterms. Morgan Stanley’s Michael Wilson said polls pointing to Republicans winning at least one chamber of Congress provide a potential catalyst for lower bond yields and higher equity prices.

“Has the stock market been voting early?” said Ed Yardeni, founder of his namesake research firm, referring to the S&P 500 bounce back from an October low. “Tomorrow’s midterm elections may further boost stock prices in coming months if history is a guide. Our soft-landing economic outlook, if it pans out (60% subjective odds), may be another wind at the stock market’s back.”

Optimism, for the moment, is outweighing concerns over the Federal Reserve’s resolute campaign against price surges, signs of stress in US corporate performance and China’s announcement it will “unswervingly” adhere to current Covid Zero policy.

Meanwhile, Facebook parent Meta Platforms Inc. rallied on plans to cut jobs. Tesla Inc. was the biggest drag on the S&P 500 as the stock continued to sell off in the wake of Chief Executive Officer Elon Musk’s purchase of Twitter Inc. Apple Inc. bounced back from earlier losses triggered by a report saying it expected to produce at least three million fewer iPhone 14 handsets than originally anticipated this year.

Stocks rose on Friday after data showed strong hiring and wage increases along with higher unemployment. That offered a mixed picture for Fed officials debating how long to extend their campaign to curb elevated inflation.

Swaps markets are leaning toward a 50 basis-point Fed rate increase in December, after a fourth consecutive jumbo hike to a target range of 3.75% to 4% at last week’s meeting. Rates are expected to peak slightly above 5% around mid-2023.

The latest US inflation reading due Thursday will be closely watched after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.

“Since we might not know the answer to what the makeup of Congress will be this week, Thursday’s CPI number will be very important once again,” Matt Maley, chief market strategist at Miller Tabak + Co., said in a note. “Even if we get a better-than-expected CPI number later this week, the odds that it will only create a very short-term bounce are high. Before long, the stock market should roll-over once again.”

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