Fed Blows Hot and Cold About Monetary Policy

U.S. stocks wobbled Thursday as Federal Reserve chairman Jerome Powell signalled that monetary policy was yet to reach a restrictive level to bring inflation back to target, thus dampening investor optimism that the period of rate hikes has come to an end. The mood suddenly changed on Friday. Stocks rallied more than offsetting the previous day's losses to notch a second-straight weekly win as some Fed speakers leaned to less hawkish remarks. Atlanta Fed president Raphael Bostic said the central bank will reach its 2% objective “without us having to do anything more.” He is convinced that the US economy may not have fully absorbed the impact of past interest rate increases.

Big tech led the rebound. The Nasdaq Composite eventually jumped 2.37% for the week while the S&P 500 gained 1.31%. The Dow Jones Industrial Average rose 221.78 points or 0.65%.

By contrast, European stocks were muted amid weak growth prospects. Tuesday's data showed a sharper-than-forecasted decline in Germany's industrial output in September, pointing to the severe impact of a recent slowdown in order intake. Industrial production dipped 1.4% month-on-month in September, as stated by the Federal Statistics Office. Analysts had predicted zero growth. The DAX and MSCI EMU indexes edged up 0.30% and 0.18% respectively over the week. In the UK, the FTSE 100 slid 0.77%.

In Asia, China’s Shanghai Composite struggled to gain a modest 0.27% in the wake of disappointing trade data. Japan’s Nikkei rose 1.93%, bolstered by the central bank's persistently ultra-accommodative monetary policy.

Tech leads stocks higher, energy retreats

The energy sector took a nosedive (-3.82%) as oil prices fell again for the third straight week due to ongoing worries about renewed apprehensions of escalating U.S. interest rates and a slowdown in worldwide demand. The WTI crude oil prices dropped to $77.17 a barrel (down 4.15%) while those of the Brent lost 3.76% to $81.70 a barrel. Both benchmarks are currently on course for their most extended and steepest downturn since a four-week slump stretching from mid-April to early May. This will be welcomed by drivers as well as central bankers, as the inflationary pressure coming from rising fuel costs threatened to undermine their efforts to bring inflation back to the target level.

It was also a tough week for utilities (-2.60%) and real estate (-2.13%).

On the flip side, information technology (+4.76%) pushed the broader market higher with Apple (AAPL) and Microsoft (MSFT) stocks up 5.52% and 4.78% respectively. Apple is set to pay up to $25 million to settle claims from the Justice Department that the tech giant favoured hiring immigrant workers over American citizens and legal green card holders for some jobs.

Communication services also fared well (+2.21%), boosted by Meta Platforms (META: +4.50%), Netflix (NFLX: +3.44%), and Alphabet-Google (GOOG: +2.83%).

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