There have been several notable moves in the markets since the start of the month as US stocks markets chalked-up their biggest weekly gains of the year in the week ending 3 November. The benchmark S&P 500 gained 6% and the technology heavy Nasdaq Composite index was up 6.5%.

In Europe and the UK stock indices were not as strong but still ended up between 2% and 3%. Meanwhile bond markets registered big declines in yield (prices moving higher).

The US 10-year treasury yield briefly poked its nose above 5% to new cycle highs before falling back to 4.6% with similar falls seen across the yield curve spectrum of maturities.

Falling bond yields partly explain the big rally in stocks as investors got a welcome respite from persistently rising yields but there are other factors to throw in the mix.

The FOMC (Federal Reserve Open Market Committee) held official interest rates steady on
1 November as widely expected but while Fed chair Jerome Powell left the door open for further hikes, markets sensed the top of the cycle is now close.

A softer than expected October non-farm payrolls report (3 November) reinforced belief that the jobs market which has displayed a lot of resilience, was finally losing some steam.

The economy added 150,000 jobs compared with 180,000 expected by economists although the data was impacted by the UAW (Union of Automotive Workers) strike which has now ended.

There were downward revisions to the prior two months which lopped-off over 100,000 jobs.

Annual wage growth cooled to 4.1% and the unemployment rate nudged-up again to 3.9%, suggesting the jobs market is slowly coming back into balance between supply and demand.

All in all, stock markets appear to have returned to a ‘goldilocks’ scenario where the economy is not running too hot but not slowing too quickly to raise concerns about heightened risks of recession.

The recent strong stock market gains come after one of the longest monthly losing streaks since 2020 which suggests investor sentiment was weak and primed for a rebound.

CNN’s Fear and Greed index is signalling ‘fear’ which supports a technical rebound while Bank of America’s proprietary Bull & Bear indicator is flashing a contrarian buy for a third straight week.

Chief investment strategist Michael Hartnett told investors on 3 November that the technical picture looks supportive of a year-end rally.

Hartnett, who has been bearish on stocks this year added a caveat to his positive view, saying: ‘But note, everyone now expects a big year-end rally.’

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