Wall Street closes at new highs on earnings cheer and strong jobs report   

Equity markets are overbought as evidenced by the latest momentum indicators (relative strength index close to 100), but Wall Street kept shrugging off technical warning signs. The main indexes hit new record highs as encouraging earnings reports, strong jobs growth in October, and Fed Chair Jerome Powell’s speech on Tuesday boosted sentiment about economic growth. The later indeed downplayed the potential for sooner rather than later rate hikes while announcing his plan to reduce the Fed’s bond purchases by about $15 billion a month starting in November.

The S&P 500 rose 2% week-over-week, clinching a record close of 4,697.53, and the Dow Jones Industrial Average ended up 1.42%, or 508 points at an all-time high of 36,327.95. The Nasdaq climbed 3.05%, closing at a record of 15,971.59. Small cap stocks did even better with the Russell 2000 up 6.09%.

European markets followed suit (MSCI EMU up 2.43%) but APAC markets were mixed. The Shanghai Composite dipped again (-1.57%) while the Nikkei jumped 2.49% after PM Kishida’s comfortable victory in the Japanese general election.

Tesla skyrockets

Nine of the 11 major S&P sectors advanced, with consumer discretionary rising the most. This sector continued to shine (+4.99%) for the fifth week in a row, led again by Tesla (+9.70%). The electric vehicle maker climbed to fresh record highs though its stock had already risen 22% last week.

Information technology was the second-best performer (+3.34%), underpinned by a chip-fueled rally (Nvidia: +16.37%, Qualcomm: +22.54%). Materials were not far behind (+3.19%), as the sector racked up gains in the wake of FMC (+17.16%) after the agricultural science company reported better than expected results and confirmed its full-year guidance. It should also be noted that energy finished in positive territory (+1.33%) in spite of a decline in oil prices following a bigger-than-expected increase in weekly U.S. crude stockpiles (WTI down 2.75%).

By contrast, financials (-0.63%) and healthcare (-0.67%) kept a lid on gains in the broader market. Bank stocks were on the backfoot as U.S. Treasury yields dropped again. The S&P healthcare sector was dragged lower by Moderna whose stock tumbled 31.34% as the company trimmed its vaccine sales. In the same vein, it was a tough week for Merck (stock down 7.31%) after its rival (Pfizer) said that its experimental antiviral pill for COVID-19 cut rates of hospitalization and death by nearly 90% in high-risk adults. This is a serious challenge for the competing drug Molnupiravir, developed by Merck and Ridgeback.

U.S. Treasury yields slide as investors reconsider rate-hike expectations

The 10-year U.S. T-note yield dropped to +1.46% from +1.55%, compared with a five-month peak of 1.66% touched two weeks ago. The 2-year Treasury yield also fell 9 basis points to +0.39% from +0.48%. This may be a sign that investors remain confident the Fed will ultimately keep inflation under control. The trend was similar in Europe, with the 10-year Germany bond yield down 17 basis points at -0.28%.

Against this bullish backdrop for government bonds, corporate investment grade bonds bounced back (+0.92% in Europe, four weeks of losses offset, +0.74% in the U.S.). High-yield bonds closed higher too (+0.31% in Europe and +0.56% in the U.S). Emerging debt remained weak, edging up +0.12% in local currencies, with a dollar index up 0.35%. Elsewhere, gold gained momentum (+2.02%, spot price at $1,818.36/Oz).

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