Wall Street Soars as Tech and Growth Stocks Shine, with Eyes on Inflation and Earnings | Daily Market Analysis

Key events:

• USA - OPEC Monthly Report
• USA - Crude Oil Inventories

The major indices on Wall Street closed the week with substantial gains on Friday, bolstered by prominent technology and growth stocks as Treasury yields stabilized. Investors also looked ahead to next week's reports on inflation and other economic data.

The tech-heavy Nasdaq Composite witnessed its most significant one-day percentage increase since May 26, showcasing the strength of the tech sector.

Equities rebounded from the declines experienced in the previous session, a reaction to Federal Reserve Chair Jerome Powell's hawkish comments concerning interest rates. Thursday's downturn marked the end of the longest winning streaks for the S&P 500 and the Nasdaq in two years.

Specifically, the Dow Jones Industrial Average surged by 391.16 points, equivalent to a 1.15% increase, reaching 34,283.1. The S&P 500 gained 67.89 points, representing a 1.56% rise, closing at 4,415.24. Meanwhile, the Nasdaq Composite witnessed a robust increase of 276.66 points, or 2.05%, concluding the day at 13,798.11.

Investors are eagerly awaiting the release of US consumer price data for October this Tuesday. This data will provide an update on the Federal Reserve's efforts to combat and reduce inflation from the multi-decade highs observed last year.

The consensus is that inflation is expected to have increased by 0.1% on a monthly basis. In September, the Consumer Price Index (CPI) saw a surprising 0.4% increase, primarily driven by a surge in rental costs. However, this report also indicated a moderation in the underlying inflationary pressures.

A more significant cooling of inflation could intensify discussions about reaching the peak interest rate. This conversation has been fueled by October's employment report, which pointed to a gradual improvement in labor market conditions.

The US will also release producer price data and retail sales numbers for October. Retail sales are anticipated to dip into negative territory following a series of strong monthly gains.

The Australian Dollar is facing continued downward pressure throughout the week, even as the US Dollar weakens due to higher US Treasury yields. The AUD/USD pair, however, finds itself under pressure following the Reserve Bank of Australia's (RBA) recent dovish stance.

The RBA released its Monetary Policy Statement (MPS) last Friday, highlighting the challenges posed by persistent inflation and a sluggish Australian economy. The RBA's focus is on realigning inflation with its target, and while the idea of hitting the pause button was considered in November, the RBA appears to have leaned towards the confidence of a rate hike as a more effective strategy to address inflation concerns.

While the US dollar remains strong, traders are eagerly anticipating another set of US inflation data that is expected to provide further insights this week into whether the Federal Reserve needs to take further action to control price pressures.

The Japanese yen, on the other hand, remains in a vulnerable position, hovering near a one-year low against the US dollar, with markets closely watching for potential intervention by Tokyo.

Throughout the week, investors will have the opportunity to hear from several Federal Reserve officials, including New York Fed President John Williams, Chicago Fed President Austan Goolsbee, and Governors Philip Jefferson and Michael Barr. These policymakers will assess the need for further tightening before their upcoming meeting scheduled for December 12-13.

Federal Reserve Chair Jerome Powell, in his recent statements, expressed a lack of confidence that interest rates have been raised to a level sufficient to combat inflation effectively. While the Fed is cautious about over-tightening policy, Powell emphasized the importance of getting inflation under control.

These sentiments were echoed by fellow Fed officials, such as San Francisco Fed President Mary Daly, who indicated that the Fed may not have finished raising rates yet.

Investors have closely monitored benchmark Treasury yields, which have somewhat eased from their 16-year highs, as they gauge whether interest rates have indeed reached their peak and when the central bank might start to lower them.

The third-quarter earnings season is winding down, but the upcoming week will see several major retailers reporting their results. Investors will be keenly observing these reports to gauge the resilience of consumer spending.

Home Depot is set to report ahead of the market opening on Tuesday, followed by Target on Wednesday. Additionally, Walmart and Macy's are scheduled to release their earnings on Thursday.

Notably, Target has grappled with higher costs and made downward adjustments to its guidance due to issues like theft impacting its bottom line. In contrast, Walmart recently achieved record-high stock prices, bolstered by strong revenue and profit growth, exceeding expectations in its August report.

There is a looming risk of a federal government shutdown if lawmakers in Washington cannot pass a measure to temporarily fund operations before the upcoming Friday deadline. Disagreements within the Republican party regarding spending cuts and policy riders, including abortion restrictions, have persisted throughout 2023, with some Republican centrists advocating for a more bipartisan approach that can gain Senate support.

US House Speaker Mike Johnson recently introduced a Republican stopgap spending measure to prevent a partial shutdown, but the plan has faced criticism from members of both parties. Further disagreements could raise concerns about the governance of the world's largest economy.