Dow jumps nearly 750 points, bond yields fall as stocks end higher on news Fed may move to smaller rate hikes after November

U.S. stocks closed sharply higher on Friday as investors weighed a report from the Wall Street Journal and comments from Federal Reserve officials suggesting they may move to smaller rate hikes after the central bank’s November meeting.

Investors also weathered intraday volatility in stocks, with nearly $2 trillion in notional value of options on stocks, indexes and exchange-traded funds expected to expire Friday, according to Goldman Sachs.

How stock indices are traded
  • Dow Jones Industrial Average DJIA,
    It rose 748.97 points, or 2.5%, to close at 31,082.56.

  • S&P 500 SPX,
    It rose 86.97 points, or 2.4%, to end at 3,752.75.

  • Nasdaq Composite COMP,
    It increased by 244.87 points or 2.3% and ended at 10,859.72 points.

During the week, the Dow rose by 4.9%, the S&P 500 by 4.7% and the Nasdaq by 5.2%. All three indexes posted their biggest weekly percentage gains since June, according to Dow Jones Market Data.

What drove the markets

U.S. stocks rose on Friday as investors considered a report from The Wall Street Journal and comments from San Francisco Fed President Mary Daly that suggested the Federal Reserve could potentially begin to back off its aggressive rate hikes later this year. ,

“We’re starting to hear some rumblings that the Fed will at least tone down the aggressiveness of its rate hike,” Mona Mahajan, chief investment strategist at Edward Jones, said by phone on Friday. Markets had priced in “very firm” gains of 75 basis points in December, as well as next month.

While the US central bank looks set to raise interest rates again by three-quarters of a point at its policy meeting in early November, there may be some debate among Fed officials about whether to raise rates by 50 basis points in December.

“This is the first step of what we call the beginning of the end,” Mahajan said. “Over time, we would expect the pace of rate hikes to slow down,” then a pause at some point and then an assessment of where inflation and the economy is headed, he said.

The Fed on Friday cut its odds of a December hike by 75 basis points to futures traders, down to 50% from 75% before the report, according to CME’s FedWatch tool.

Meanwhile, Treasury yields took a break from a recent rally, helping to ease pressure on stocks. TMUBMUSD02Y two-year Treasury note yield,
The 10-year yield TMUBMUSD10Y fell 11.9 basis points to 4.489% on Friday,
It fell just over a basis point to 4,212%, according to Dow Jones Market Data.

Ten-year and two-year yields “have risen sharply in the last few days,” Anthony Saglimbene, chief market strategist at Ameriprise Financial, said in a phone interview Friday. He worries that the stock market’s strong rally on Friday may have been an overreaction to “speculation that the Fed could hold off on rate hikes.”

All three major U.S. stock indexes posted their biggest weekly percentage gains since June as investors continued to assess companies’ third-quarter earnings results. The Dow Jones Industrial Average rose 4.9%, the S&P 500 rose 4.7%, and the Nasdaq Composite rose 5.2%.

“Remember, despite the one-off stories, we had decent earnings all week,” Mahajan said.

About 20% of S&P 500 companies reported earnings for the third quarter, FactSet chief earnings analyst John Butters reported Friday. Its note shows that 72% of S&P 500 companies reported a “positive” surprise in terms of earnings per share.

But Snap Inc. SNAP shares,
fell on Friday after a disappointing report.

Read: Snap’s advertising woes are bringing some of Wall Street’s worst fears to bear on the Internet sector.

Investors were also watching the options market.

A group of options strategists at Goldman Sachs Group said in a note to clients that open interest in options linked to major equity indexes and exchange-traded funds tracking those indexes has increased this year, while interest in single-stock options has declined.

That left the market vulnerable to major intraday swings on Friday as options dealers scrambled to hedge their exposure to near-the-money options.

“If market makers or other option traders hedging their positions are long [at the money] options, the flow on expiration could depress stock prices,” the team said in a note to clients.

Companies in focus
  • Snap Inc. SNAP shares fell 28.1% after the company reported disappointing earnings and said it expected flat revenue growth for the fourth quarter.

  • A report that the United States could be subject to the expected acquisition of Elon Musk Twitter Inc.
    The national security probe sent the company’s shares down 4.9%.

  • stocks American Express Co.
    fell 1.7% after the company highlighted “mixed signals” in the U.S. economy, which helped drag shares lower despite quarterly earnings beating Wall Street expectations.

  • Intel Corp.
    Shares rose 3.4% after the company said it planned to announce “targeted” layoffs in November.

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