Market Commentary

Weekly Market Commentary - Nov 6th, 2023

A massive stock rally took hold this week as hopes of a Fed pivot sparked a risk-on surge. The S&P 500 jumped 5.9% for its strongest weekly gain this year. Meanwhile, the Nasdaq soared 6.6% for its best week since March.

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Key Insights

Dovish Fed signals and a lighter October jobs report ignited a powerful relief rally in equities. Treasury yields retreated sharply from recent highs as rate hike expectations eased. But with inflation still high, the Fed’s task remains unfinished.

Driving the Markets

The prospects of less aggressive Fed policy unleashed animal spirits this week, rapidly reversing recent pessimism. But lingering risks could curtail the euphoria.

  • October’s jobs report showed a gain of 150,000 jobs, below estimates for 170,000 and the slowest pace of hiring in nearly two years. The news stoked hopes that a Fed pivot to slower rate hikes could be near. Markets celebrated, with the Nasdaq having its best month since April 2020.
  • But as they say, one swallow does not make a summer. While the October jobs data provides a dose of optimism, one report does not make a trend. Policymakers will need months of slowing inflation and employment moderation before confidently declaring victory over prices.  
  • Premature exuberance could set markets up for disappointment if ongoing inflation forces the Fed’s hand with more aggressive tightening than hoped. And with year-end targets approaching, some gains may have been linked to rebalancing flows rather than fundamentals.

Yields Retreat on Rate Bets

In tandem with pivot hopes, Treasury yields plunged this week, with the benchmark 10-year falling 15 basis points below 4.5% while the 2-year shed 10 basis points under 4.9%. 

The swift reversal after yields spiked to multi-year highs in October shows how sensitive markets remain to shifting Fed expectations. Investors raced to scale back rate hike bets, flattening the yield curve dramatically.

But inflation remains well above the Fed’s 2% target. If price pressures fail to moderate sufficiently in coming months, the central bank may need to push interest rates higher than markets currently anticipate. This possibility leaves yields vulnerable to another upside spike if future economic data forces a reconsideration of the policy outlook.

Rotation Unwinds Recent Trends

As part of the risk asset surge, small-cap, technology, and growth stocks saw powerful rallies this week, reversing their marked underperformance versus value stocks for most of 2022. Defensive sectors lagged while rate-sensitive financials saw a breakout.

Many of the past decade’s cult stocks seem to have resumed their leadership mantle. But these downtrodden areas still face formidable headwinds from tight monetary policy and high inflation. 

Their renewed outperformance could quickly prove fleeting if markets get ahead of themselves in anticipating Fed dovishness.

Markets in Review

It was a dramatic risk reversal this week across assets. Stocks surged, Treasury yields tumbled, and recent laggards led. But with inflation still problematic, caution remains prudent.


Euphoria over hopes for moderating Fed policy powered the major indexes to their best week this year. The tech-heavy Nasdaq’s 6.6% weekly gain was its strongest since March. The S&P 500 had its best week since June.

Market sentiment shifted rapidly from gloom to excitement this week. But skeptical minds will note the rally came on light volume without meaningful breadth. And many tech leaders face tough year-over-year growth comparisons in coming quarters.

Sustainability remains a question mark until evidence of slowing inflation and job growth becomes definitive. Premature exuberance could leave stocks vulnerable to another leg lower if economic improvements remain elusive.


Treasuries rallied sharply this week in response to easing rate hike bets, posting the biggest gains since March 2020. The yield curve bull flattened dramatically as policy-sensitive short-term yields fell the most. 

The 2-year yield’s 10 basis point decline under 4.9% reversed nearly half of its 200 basis point surge this year. Meanwhile, the benchmark 10-year Treasury yield fell back decisively below 4.5% after topping 5% in October.

The whipsaw price action illustrates how sensitive bond markets remain to shifting Fed policy expectations. But inflation remains well above the central bank’s 2% target, giving the FOMC room to push rates higher than anticipated if price pressures fail to steadily moderate.

Investor Takeaways

Euphoria over easing rates sparked a risk asset surge this week. But unbridled optimism may be premature with Fed policy still restrictive as inflation hovers near 40-year highs.

For Conservative Portfolios

The pullback in Treasury yields presents an opportunity to lock in gains after October’s plunge. With the Fed’s inflation fight ongoing, substantial further upside seems limited.

Staying moderately underweight duration reduces risks if strong data forces the Fed to overtighten to tame inflation. Ample policy uncertainty remains.

For Growth Portfolios

October’s powerful counter-trend rally provided a chance to take profits and reduce risk exposure at better prices. Pocketing gains gives dry powder to buy back in should sentiment deteriorate again.

With volatility likely to persist in coming months, maintaining a balance between momentum and fundamentals allows participating in rallies while limiting drawdowns.

For Opportunistic Portfolios

Riding price momentum tactically makes sense amid volatile swings, but don’t chase exaggerated moves. Shift exposures nimbly, prepared to take swift gains as reversals can come without warning. 

Periods of dramatic market regime shifts create opportunities to generate alpha. But with risks still elevated, deploy capital selectively, saving firepower to capitalize on the next disruption.

Final Thoughts

Exuberance over a potential Fed pivot drove a powerful risk rally this week as pessimism rapidly unwound. But with monetary policy still restrictive amid sticky inflation, volatility likely persists until the outlook clarifies. Savvy investors should temper euphoria and remain nimble.




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