Stocks rally on hopes of less hawkish Fed

Wall Street rebounded after San Francisco Federal Reserve President Mary Daly said that “the time is now to start planning for stepping down.” Though the Fed still has a lot of work to do to fight inflation, Daly’s dovish comments pushed stock markets higher in the wake of a better-than-feared Q3 earnings season. Investors shook off inflation worries and rising yields. Yet the benchmark 10-year Treasury yield topped 4.22% (+20 basis points), i.e. its highest level since June 2008.

Helped by strong profits from IBM (NYSE:IBM) and AT&T (NYSE:T), the Dow Jones Industrial Average gained 4.89% or 1,448 points, closing out its best week since June and bringing its year-to-date performance to -14.66%. The Nasdaq Composite jumped 5.22% (-30.59% year-to-date). The S&P 500 rose 4.74% (-21.26% for the year). The VIX index remained elevated, slightly below 30.

European stocks performed in unison. The MSCI EMU was up +2.46% (-21.08% YTD), while the FTSE 100 added +1.62% (-5.62% YTD). UK stocks were briefly pressured after Prime Minister Liz Truss’ resignation speech and six chaotic weeks into the job. On the flip side, Asian markets struggled to find their footing. Japan’s Nikkei slid 0.74% (-6.60% YTD) and the Shanghai Composite fell 1.08% (-16.51% YTD). President Xi Jinping has been confirmed to serve an unprecedented third term following the Chinese communist party’s week-long congress.

All S&P sectors are in positive territory   

For the fifth time this year, all the 11 S&P 500 sector indexes closed higher. Energy was the best performer (+8.08% week-over-week) and remains the only sector to deliver positive returns in 2022 (+57.86% year-to-date). Yet oil prices edged down (WTI crude oil fell $0.47 to $85.14 a barrel: -0.55% over the week) while natural gas prices were in freefall (-22.64%) but, in the meantime, oil and gas services gained momentum with Schlumberger stocks (NYSE:SLB) skyrocketing 19.57% after a better-than-expected earnings announcement. The company's quarterly revenue was up 27.9% compared to the same quarter last year.

Hopes that the Fed could slow the pace of rate hikes bolstered growth sectors despite surging yields. Information technology was the second winner of the week (+6.49%). Cloud computing, next generation internet, and cybersecurity were among the best themes to play. Consumer discretionary (+5.64%) was also under the spotlight with the e-commerce giant Amazon.com (NASDAQ:AMZN) up 11.62%. 

Defensive sectors lagged behind the broad market. Utilities, consumer staples and health care gained 1.95%, 2.16% and 2.29% respectively.