North American stocks surged to close out the trading week on Friday after a report said the U.S. Federal Reserve will likely debate on a smaller interest rate hike in December, raising hopes the central bank may be poised to adopt a less aggressive policy stance.
Some Fed officials have begun sounding out their desire to slow down the pace of increases soon, according to a Wall Street Journal report, and how to signal plans to approve a smaller increase in December.
San Francisco Federal Reserve President Mary Daly echoed that sentiment and said it’s time to start talking about slowing the pace of the hikes in borrowing costs and doing so should avoid sending the economy into an “unforced downturn” by hiking interest rates too sharply.
In addition, Chicago Federal Reserve Bank President Charles Evans reiterated his stance the Fed should get policy to “a bit above” 4.5% by early next year and then hold it there.
Analysts widely expect the Fed to hike rates by 75 basis points for a fourth straight meeting in November. Equities have been under pressure this year as the central bank has embarked on an aggressive rate hike path as it attempts to reign in stubbornly high inflation, increasing worries of a policy error that will send the economy into a recession.
“You had the (report) and then you had some confirmation that 75 seems to be pretty baked in for November here but perhaps there is room to slow and extend... rather than front-load so high and then have to peel off, you kind of ease to your 4.75% or 5% peak,” said Tom Hainlin, senior investment strategist at U.S. Bank Wealth Management in Minneapolis, Minnesota.
“Then maybe just hold there for a while so you are getting a little bit of relief.”
Canada’s main stock index ended up almost 300 points on Friday, buoyed by gains in the base metals sector.
The S&P/TSX composite index was up 281.66 points at 18,860.95.
In New York, the Dow Jones Industrial Average rose 748.97 points, or 2.47%, to 31,082.56, the S&P 500 gained 86.97 points, or 2.37%, to 3,752.75 and the Nasdaq Composite added 244.87 points, or 2.31%, to 10,859.72.
For the week, the S&P 500 climbed 4.74%, the Dow gained 4.89% and the Nasdaq rose 5.22%. Each of the three major indexes notched their biggest weekly percentage gains in four months.
The report helped stocks recover from early losses as Snap Inc plunged 28.08% after posting its slowest quarterly revenue growth in five years as advertisers cut spending due to inflation and geopolitical woes.
That weighed on other companies that rely heavily on ad revenue such as Meta Platforms Inc, down 1.16% and Pinterest, off 6.40%.
Also falling after reporting quarterly earnings were American Express, which lost 1.67% and Verizon Communications, down 4.46%.
American Express said it built bigger provisions to prepare for potential defaults as an economic downturn looms while Verizon’s profit slid 23% and the carrier missed estimates for wireless subscriber additions.
Next week will bring earnings from names such as Twitter , Microsoft Corp, Alphabet and Apple Inc.
Despite the recent batch of disappointing results, third-quarter earnings season has so far has been better-than-feared, with growth expectations for S&P 500 companies at 3.1%, according to Refinitiv data, up from 2.8% earlier in the week but still well below the 11.1% forecast at the start of July.
Schlumberger shot up 10.33% to help to lift the S&P 500 energy sector 2.76% after reporting a quarterly profit above expectations.
Oil prices settled up on Friday as hopes of stronger Chinese demand and a weakening U.S. dollar outweighed concern about a global economic downturn and the impact of interest rate rises on fuel use.
To fight inflation, the U.S. Federal Reserve is trying to slow the economy and will keep raising its short-term rate target, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday in comments that weighed on oil.
But crude is gaining support from a looming European Union ban on Russian oil, as well as the recent 2 million-barrels-per-day output cut agreed by the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+.
Brent crude settled at $93.50 a barrel, up $1.12, or 1.2%. U.S. West Texas Intermediate crude (WTI) settled at$85.05 a barrel, up 54 cents, 0.6%. During the session, both benchmarks had been down by more than a dollar.
Brent was up by 2% on the week, while WTI fell about 0.7%.
Traders were squaring up positions ahead of the weekend after the WTI’s November contract expiry, increasing volatility.
“The bias is to play the weekend to the long side,” said John Kilduff, partner at Again Capital LLC in New York.
Reuters
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