Fundamental Analysis

Equities Extend Winning Streak Amid Falling Treasury Yields

  • The S&P 500 and Nasdaq achieved their longest winning streak in two years.
  • Markets indicate a 90.2% chance that the Fed will maintain rates in December.
  • Falling yields supported the rise of mega-cap growth stocks.

On Tuesday, US equities surged amid a drop in US Treasury yields. The rally came as falling yields boosted megacap growth stocks. 

S&P 500 daily performance (Source: Bloomberg)

S&P 500 daily performance (Source: Bloomberg)

Consequently, the S&P 500 and Nasdaq recorded their longest winning streak in two years. 

The benchmark 10-year Treasury note yield was set for its fifth decline in six sessions, reflecting expectations that the Fed has concluded its rate hike cycle. 

The decrease in yields supported the rise of megacap growth stocks such as Microsoft, Apple, and Amazon, which became the most significant contributors to both the S&P 500 and Nasdaq’s gains.

Investors were also seeking more clarity on interest rates from the Federal Reserve. While expectations of the Fed ending its rate hike cycle have grown, the market remains sensitive to the possibility of further rate hikes. Moreover, central bank officials have been cautious in their comments regarding the future rate path.

Markets now indicate a 90.2% chance that the Fed will maintain rates at its December policy meeting, up from 68.9% a week ago, according to CME’s FedWatch Tool. 

Still, Federal Reserve policymakers are assessing strong economic data, signs of a slowdown, and the impact of higher long-term bond yields as they consider whether additional rate hikes are needed to curb inflation.

The third-quarter US economic growth, at an annualized rate of 4.9%, was an outstanding performance. Fed Governor Christopher Waller stated that this performance warrants close attention in future policy considerations. 

Similarly, Fed Governor Michelle Bowman interpreted the recent GDP number as evidence that the economy remains strong and may be gaining momentum, possibly requiring a higher Fed policy rate. However, Federal Reserve Bank of Minneapolis President Neel Kashkari and Chicago Fed President Austan Goolsbee did not rule out the possibility of rate cuts.

Meanwhile, the pan-European STOXX 600 ended 0.2% lower, extending its losses from the previous session. The decline came as Portugal’s shares declined due to Prime Minister Antonio Costa’s resignation. The resignations came amid an investigation into alleged irregularities in lithium mining and hydrogen projects. 

Elsewhere, ECB‘s vice president, Luis de Guindos, stated that the Eurozone’s economy is likely to contract slightly or, at best, remain stagnant in the fourth quarter.