November ended at a high for the stock market with both the SNP500 and the Dow Jones increasing to new price highs. The SNP500 increased to its highest price since September and the Dow Jones since April, while the NASDAQ increased close to recent highs. However, the US Dollar was again on the backfoot and declined close to a 2-month low.
The high level of volatility was triggered by comments from the Federal Reserve Chairman. The head of the Fed, Jerome Powells, advised markets that the hikes will need to be slowed and that this “may come as soon as December”. Markets interpreted this as a clear sign of a definite lower hike in December and triggered a surge in demand from institutional investors and individuals.
The US Dollar index declined below 106.00 for the first time since Monday and declined to a new weekly low. The US Dollar suffered from a clear “risk on” appetite within the market as the Fed indicated a lower rate hike, positive economic figures from the US and also a softer China COVID-19 policy. These factors lowered the demand for the Dollar as investors were less interested in cash and safe havens but more in riskier assets.
The price of Crude oil did not see a major reaction to comments made by the Fed as did other instruments. However, the price continues to be supported by the easing of COVID restrictions in some areas of China. According to reports, it has been rumored that OPEC will not make any major decisions with regard to oil production targets. This is due to the market's instability, mainly the G7 and EU’s price caps on Russian Oil.
Dow Jones
The Dow Jones is the best-performing US Index throughout 2022 and has shown the most resilience when the stock market has come under pressure. While the NASDAQ has been underperforming when compared to the SNP500 and Dow Jones. The price originally started the day with a decline, only managing to find buyers during and after Powell’s speech. Out of the 30 stocks, only 2 ended the day lower, and Microsoft saw the strongest increase (+6.16%).
In terms of technical analysis, the price has formed a clear breakout and is trading above most moving averages. However, traders should be aware that the price is trading with an overbought indication from both the Relative Strength Index and Stochastic Oscillator.
Markets are clearly focusing mainly on comments made by the Fed’s expected lower rate hike. It is expected the Fed will increase rates by 0.50% rather than 0.75%. The US stock market was also supported by strong economic figures which show the economy remains resilient. However, many analysts are questioning whether the price may be overbought and possibly that markets have overreacted?
Investors seem to be concentrating on the fact that the Fed will lower the pace in December, but have ignored other comments. The Chairmen has still advised that interest rates will continue to rise higher than originally expected and that they will remain high in the long term. The interest rate target has remained the same but may take an extra month or two to reach.
Of course, it is important for traders to consider the price and not trade against the trend, but at the same time, it is important to remember that certain pressures still remain. Over the next 24 hours, investors will mainly be concentrating on the continued market reaction. The price is also likely to be influenced by today’s PCE Price Index, Manufacturing PMI, and tomorrow’s NFP.
Summary:
- Jerome Powells advises markets that the hikes will need to be slowed and that this “may come as soon as December”.
- US Stocks see a big surge in demand but the Fed still advises interest rates will remain high in the long term.
- The US Dollar index declined below 106.00 for the first time since Monday and declined to a new weekly low.
- OPEC is rumored to keep production targets the same during December due to price caps and instability.
