Stock Market Rally Stalls: Will Fed Comments Spoil the Rebound?
Stock Market Rally Stalls: Will Fed Comments Spoil the Rebound?
By:Ilya Spivak
The stock market rebound has stalled. Will worrying comments from Fed officials take them down again?
- Stocks stalled after a rally on hopes for reopening the US government
- The tech sector struggled after SoftBank sold its entire stake in Nvidia
- Fed commentary threatens to revive worries about rate cut prospects
A forceful stock market rebound lost momentum after just one day. Wall Street surged at the start of the trading week amid hopes for an end to the US government shutdown. Reopening has come one step closer as a deal struck in the Senate has made its way to the House of Representatives, but the rally ran aground all the same.
The bellwether S&P 500 put in a paltry gain of 0.22% while the tech-tilted Nasdaq 100 fell 0.29%. That put the outsized influence of the tech sector firmly on display. It was the only sector to lose ground today as shares of market-cap giant Nvidia Corp fell nearly 3% after news that SoftBank sold all of its stake in the chipmaker for $5.83 billion.
Stock market rally: a one-off pause or something more sinister?
This makes it tempting to chalk up the day’s soggy performance to a one-off headline. Indeed, the ProShares S&P 500 excluding Technology ETF (SPXT) rose 0.70%, seemingly highlighting resilience across most of the equity space. However, that rose-colored interpretation probably amounts to wishful thinking.
The small-cap Russell 2000 index – where the tech sector accounts for 13.6% of the index, less than half of the 35% share it captures in the S&P 500 – still managed a rise of just 0.08%. Moreover, price action outside stocks looked unconvincing. Gold and the US dollar stalled while bitcoin fell 3.21% in what could be a hint building “risk off” sentiment.
Perhaps the closure of the US Treasury bond market for the Veterans Day holiday robbed traders of the variables they needed for real directional conviction, even as a modest uptick in 10-year T-note futures pointed to a downward tilt on interest rates. If so, this might imply that Federal Reserve rate cut prospects may be returning to the forefront.
Will Fed officials’ comments sink the markets once again?
That might be a problem for stock markets, where worries about the diminished probability of another 25-basis-point (bps) reduction in the central bank’s rate target next month fueled sharp selling last week. A slew of speeches from Fed officials will feed speculation on this front in the coming days.
A dovish message from Stephen Miran, inserted onto the Board of Governors by the White House while technically on leave as the Trump administration’s Chair of the Council of Economic Advisors, seems like a given. Remarks from New York Fed President John Williams and Governor Chris Waller may be more instructive.
Both policymakers have endorsed the Fed’s restart of easing in September and the follow-on cut in October. Waller even dissented in favor of easing earlier in the year. Stock may be put on the defensive as the US dollar gains if they appear to be on the fence about whether to act again in December, echoing Chair Powell’s fateful press conference last month.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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