Wall Street Rally Powers On After Treasury Sale: Markets Wrap

Wall Street Rally Powers On After Treasury Sale: Markets Wrap

Wall Street breathed a sigh of relief after a $16 billion sale of 20-year Treasuries saw fairly strong demand, with both bonds and stocks extending their powerful November rallies.

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(Bloomberg) — Wall Street breathed a sigh of relief after a $16 billion sale of 20-year Treasuries saw fairly strong demand, with both bonds and stocks extending their powerful November rallies.

Shortly after the auction results, benchmark 10-year yields reversed course and fell to around 4.4%. The S&P 500 advanced toward its highest since August and the tech-heavy Nasdaq 100 was on pace for a 22-month high. Microsoft Corp. rallied to a record while Nvidia Corp. climbed in the run-up to its earnings. The dollar was set for its lowest level in 11 weeks.

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Traders have been fixated on Treasury sales, especially after the US recently offered an unusually large premium to sell 30-year securities. Those auction have also been exerting a growing sway over stocks, underscoring how the path of interest rates is gripping markets of late. The 20-year bond auction drew yields of 4.78%, compared with the pre-sale level of 4.79%.

After a more than three-decade hiatus, the Treasury resurrected 20-year bonds in May 2020. Before Monday’s auction, it had never sold the securities during the Thanksgiving week. They’ve traded at a discount to other long-term maturities — which caused a degree of apprehension ahead of the sale.

“Treasuries offer extremely attractive yields,” according to Principal Asset Management. “And while the potential for capital appreciation might be limited in the face of an impending economic slowdown, the assurance of a steady income from Treasuries makes them a solid option for investors prioritizing stability heading into an uncertain 2024.”

Bonds have rallied on signs that inflation is abating, which would pave the way for the Federal Reserve to halt its aggressive hiking cycle and cut rates in 2024. 

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The Bloomberg US Aggregate index — which tracks $25 trillion of investment-grade government and corporate debt — gained 1.4% last week and is up 0.5% for the year. The gauge posted a record loss of 13% in 2022.

Read: Fed’s Barkin Says Inflation Job Not Done; Growth Easing to Trend

As the earnings season winds down, investors will also be on the lookout for results from a handful of retailers and tech companies.

Nvidia’s quarterly results could exceed sky-high investor expectations thanks to strong demand for generative artificial intelligence. Best Buy Co., Nordstrom Inc. and Lowe’s Cos. are set to post slumping sales, reflecting the consumer pullback in discretionary spending.

The S&P 500 is set to rise toward its all-time high early next year, pullback midyear and then rally back toward the highs, according to strategists at Societe Generale SA.

“The S&P 500 should be in ‘buy-the-dip’ territory, as leading indicators for profits continue to improve,” Manish Kabra wrote in his annual US equity outlook to clients. “Yet, the journey to the end of the year should be far from smooth” he added, citing an economic downturn, a looming credit selloff, and ongoing quantitative tightening as hurdles traders still need to face.

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To some market watchers, the S&P 500’s rally is looking increasingly unsustainable. Strategists tracked by Bloomberg predicted on average in mid-October that the gauge would end the year at 4,370 — but it is already been trading above 4,500.

Investors who believe that “Santa has come early” to markets may want to consider put-option spreads through year-end on companies like Expedia Group Inc., Carnival Corp., Nvidia and Intel Corp., RBC Capital Markets derivatives strategist Amy Wu Silverman wrote.

To power back to its previous peak, the S&P 500 needs more than just the earnings recovery that appears to be underway — rate cuts are necessary, too. That’s according to Bloomberg Intelligence’s fair-value model of the US stock benchmark, which says the consensus 2024 price target on the gauge looks too lofty.

The typical post-earnings recession rebound is expected to come against a backdrop of sustained higher interest rates. That’s likely to limit potential upside for the S&P 500 to around levels the gauge is currently trading at, even in the best-case scenario, based on projections by BI equity strategists Gina Martin Adams and Michael Casper.

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“The market as a whole has not yet eclipsed its early-2022 highs, reflecting the push and pull between optimism for a Fed-engineered soft landing and the potential underestimation of economic headwinds,” said Jason Pride and Michael Reynolds at Glenmede.

Meantime, some of Wall Street’s top strategists are divided when it comes to Corporate America’s earnings outlook next year. While Citigroup Inc.’s Scott Chronert expects profits to hold up even if the economy slips into a recession, JPMorgan Chase & Co. strategist Mislav Matejka says diminishing pricing power would crimp overall revenue and margins regardless of whether growth contracts.

A Citigroup index shows downgrades to US earnings estimates have outnumbered upgrades for nine weeks in a row — the longest streak since February. Chronert does expect analysts’ estimates for 2024 to drop in the coming quarter — but that would only lower the bar for companies, he said.

“We remain positive on equities and expect a broadening of the rallies recently experienced as the US economy continues on a sustainable economic expansion albeit at a modest pace,” said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.

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Read: Five Key Charts to Watch in Global Commodities This Week

As the dollar rally stalled, it will take some firm real-sector data to challenge the current dovish Fed narrative, according to Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.

“The US economy continues to grow above trend even as the rest of the world slips into recession, while price pressures remain persistent enough that the Fed will not be able to cut rates as soon and by as much as the market thinks,” Thin noted. “That said, the dollar remains vulnerable until we see a shift in market sentiment and expectations.”

To Solita Marcelli at UBS Global Wealth Management, the dollar should remain stable in the first months of 2024 due to robust economic growth and high interest rates relative to the rest of the world.

Elsewhere, Germany is exploring a drastic overhaul of its federal budget for this year, including relaxing restrictions on net new debt, following last week’s ruling by the country’s top court, according to people familiar with the discussions.

The European Central Bank may have to raise borrowing costs again if investor bets on monetary loosening undermine the institution’s policy stance, Governing Council member Pierre Wunsch said. 

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In the commodity world, oil gained as traders waited to see whether the OPEC+ alliance led by Saudi Arabia will intervene to bolster prices. Spot gold declined after a weekly advance of more than 2%. Copper climbed as industrial commodities benefit from growing optimism for an end to the Federal Reserve’s rate hikes.

Key events this week:

  • ECB President Christine Lagarde and German Finance Minister Christian Lindner speak, Tuesday
  • US existing home sales, Tuesday
  • FOMC issues minutes from the Nov. 1 policy meeting, Tuesday
  • Nvidia’s earnings, Tuesday
  • Canada’s update to the government’s fiscal and economic outlook, Tuesday
  • Eurozone consumer confidence, Wednesday
  • US initial jobless claims, University of Michigan consumer sentiment, durable goods, Wednesday
  • Bank of Canada Governor Tiff Macklem speaks, Wednesday
  • Eurozone S&P Global Manufacturing & Services PMI, Thursday
  • Thanksgiving holiday — US markets closed — Thursday
  • ECB publishes account of October policy meeting, Thursday
  • Germany IFO business climate, Friday
  • US S&P Global Manufacturing PMI, Friday
  • Black Friday, traditional kick-off for the US holiday shopping season
  • ECB’s Christine Lagarde speaks, Friday

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Some of the main moves in markets:


  • The S&P 500 rose 0.7% as of 1:55 p.m. New York time
  • The Nasdaq 100 rose 1.1%
  • The Dow Jones Industrial Average rose 0.6%
  • The MSCI World index rose 0.7%


  • The Bloomberg Dollar Spot Index fell 0.4%
  • The euro rose 0.3% to $1.0946
  • The British pound rose 0.4% to $1.2508
  • The Japanese yen rose 0.8% to 148.38 per dollar


  • Bitcoin rose 1.6% to $37,603.88
  • Ether rose 3.3% to $2,048.85


  • The yield on 10-year Treasuries declined two basis points to 4.42%
  • Germany’s 10-year yield advanced two basis points to 2.61%
  • Britain’s 10-year yield advanced two basis points to 4.12%


  • West Texas Intermediate crude rose 3% to $78.15 a barrel
  • Spot gold fell 0.2% to $1,977.46 an ounce

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Tassia Sipahutar, Robert Brand, Elizabeth Stanton, Alexandra Semenova, Sagarika Jaisinghani, Edward Bolingbroke, Vassilis Karamanis, Carter Johnson, Ye Xie and Matthew Burgess.

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