Weekly Market Commentary - Nov 13th, 2023

Equities appeared to shake off the weakness on Thursday that came after surprisingly hawkish Fed remarks sent the 10-year Treasury yield spiking over 20 basis points as expectations for additional rate hikes were reinforced. 

But Friday saw yields pull back about 10 basis points, removing some pressure and allowing the Dow to rebound nearly 400 points. The yield retreat suggested that fixed income remains an important diversifier amid Fed tightening.

Especially notable was the Nasdaq’s 2.05% surge, which outpaced the S&P 500’s 1.56% advance. This pointed to leadership from technology stocks, which led the broad upswing. 

Software and semiconductor names within tech climbed over 2.6%, helped by Microsoft powering to another record high following strong earnings results earlier in the week. Microsoft’s continued resilience underscores long-term optimism toward innovative companies even amid volatility.

For the week, major averages notched a second straight period of gains after whipsawing around the Fed news. The S&P 500 added 1.3%, the Dow rose 0.7%, and the Nasdaq gained 2.4% over the past five trading sessions. This suggests underlying fundamental health remains despite crosscurrents.

Stocks now head into next week facing crucial inflation data that poses risks of challenging  recent hard-won stability if the results miss expectations. The upcoming CPI print promises to test the market’s tentative optimism.

Thursday’s pullback that snapped the market’s multi-day winning streak came as unexpectedly hawkish remarks from Fed officials reinforced expectations for additional rate hikes down the line despite simmering hopes for a potential pause. The 10-year Treasury yield spiked over 20 basis points in response as markets repriced projected policy tightening. 

But Friday saw the 10-year yield retreat after its surge, pulling back around 10 basis points to just under 4.6%. This yield moderation removed some pressure on stocks, enabling the Dow’s nearly 400 point rebound following its jarring over 700 point drop during the prior session.

Even amid crosscurrents over policy, markets had shown remarkable resilience in recent weeks prior to the latest Fed-induced turbulence. However, next week’s inflation data poses risks of testing that confidence if the results challenge expectations and stir concerns over stubbornly elevated price pressures.

For conservative investors, the stabilization in Treasury yields on Friday despite hawkish Fed remarks earlier in the week cemented the view that fixed income remains a vital portfolio diversifier even in a tightening cycle. High credit quality bonds and dividend-paying equities can anchor portfolios, providing stability amid policy uncertainty.  

For growth-oriented investors, the renewed outperformance of technology stocks like Microsoft powering to new highs underscored their long-term return potential. But trimming extended positions could be prudent given risks of drawdowns if uncertainty around the Fed’s policy path resurfaces. Remaining invested in innovative companies while maintaining balance suits the current back-and-forth environment.

Opportunistic traders saw markets whipsaw this week as yields and equities reacted to shifting Fed expectations. Such pronounced reversals provide potential income generation opportunities for nimbleness. Using options strategies to hedge risks allows participating in upside moves while limiting drawdowns when sentiment sours. Tactical flexibility remains critical in turbulent times.

Next week, markets face a critical test as the CPI data could challenge recent Fed policy assumptions. Savvy investors will react swiftly and decisively to the crosscurrents.

Sources:

Edward Jones

Barrons

CNBC