S&P 500, Nasdaq gain on rising bets of Fed slowdown; healthcare drags Dow

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By Sruthi Shankar and Devik Jain

© Thomson Reuters FILE PHOTO: Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in New York

(Reuters) -The S&P 500 and the Nasdaq on Friday extended a rally that was sparked by rising hopes of smaller interest rate hikes following an easing in consumer prices, while a slide in healthcare stocks weighed on the Dow.

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Trading turned choppy after crypto exchange FTX said it would start U.S. bankruptcy proceedings and that CEO Sam Bankman-Fried resigned due to a liquidity crisis that prompted intervention from regulators around the world.

“What we are seeing today is the dichotomy between crypto as a risk asset, and crypto as its own industry,” said Callie Cox, analyst at trading and investment platform eToro.

The S&P 500 and the Nasdaq racked up their biggest daily percentage gains in more than 2-1/2 years in the previous session as annual inflation slipped below 8% for the first time in eight months.

“We are turning the corner on inflation, and that may be enough for the Fed to ease up on rate hikes… but there’s been a hugely optimistic reaction because people were braced for much higher rates in their portfolios,” Cox said.

© Thomson Reuters Traders work on the floor of the NYSE in New York

Seven of the 11 major S&P sectors advanced, with energy up 2%, followed by a 1.7% rise in communication services. The S&P 500 growth index, which houses rate-sensitive technology and technology-related stocks, was up 0.8%, outperforming its value counterpart.

Meanwhile, defensive stocks that include consumer staples, utilities and healthcare fell. Healthcare sector fell the most, dropping 2.3%.

“A lot of people piled into defensive sector because of the nervousness, the angst in the market,” said Kenny Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.

“If there’s a discussion about the Fed pivoting, money is going to move out of those defensive sectors and go back into where it sees opportunity, but I still think that’s a premature move.”

Investors see a 80.6% chance of a 50-basis point rate hike in December, while the top policy rate is seen in the 4.75-5% range next May, lower than the 5% plus range seen before the inflation data, according to CME Fedwatch tool.

The Fed’s policy rate currently is in the range of 3.75%-4.00%.

At 12:34 p.m. ET, the Dow Jones Industrial Average was down 186.07 points, or 0.55%, at 33,529.30, the S&P 500 was up 10.48 points, or 0.26%, at 3,966.85, and the Nasdaq Composite was up 112.58 points, or 1.01%, at 11,226.73.

The S&P 500 has now rallied more than 10% from its mid-October closing lows, while the Nasdaq has added over 8%, aided by better-than-expected earnings reports and hopes of a Fed slowdown.

The Dow is now down just 8.9% from its record closing high hit earlier this year.

However, all the three indexes are down sharply on a year-to-date basis, on course for their worst annual performance since 2008, on fears that surging inflation and rising interest rates will dent corporate profits.

U.S.-listed shares of Chinese companies rose, with Alibaba Group Holding Ltd gaining 1.7% as China eased some of its strict COVID-19 rules.

Advancing issues outnumbered decliners by a 2.09-to-1 ratio on the NYSE and by a 1.79-to-1 ratio on the Nasdaq.

The S&P index recorded 21 new 52-week highs and no new lows, while the Nasdaq recorded 83 new highs and 82 new lows.

(Reporting by Shubham Batra, Sruthi Shankar, Devik Jain, Bansari Mayur Kamdar and Shashwat Chauhan in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur)

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