November ended at a high for the stock market with both the S&P 500 and the Dow Jones rallying to new highs. The S&P 500 increased to its highest price since September, and the Dow Jones since April, while the Nasdaq 100 increased close to recent highs. However, the US Dollar was again on the back foot and declined close to a 2-month low.
The high level of volatility was triggered by comments from the Federal Reserve Chairman. The head of the Fed, Jerome Powells, advised markets that the hikes will need to be slowed and that this “may come as soon as December.” Markets interpreted this as a clear sign of a definite lower hike in December and triggered a surge in demand from institutional investors and individuals.
The US Dollar index declined below 106.00 for the first time since Monday and declined to a new weekly low. The US Dollar suffered from a clear “risk on” appetite within the market as the Fed indicated a lower rate hike, positive US economic figures, and a softer China COVID-19 policy. These factors lowered the demand for the Dollar as investors were less interested in cash and safe havens and more in riskier assets.
Crude oil did not see a major reaction to comments made by the Fed, as did other instruments. However, the price continues to be supported by easing COVID restrictions in some areas of China. According to reports, it is rumored that OPEC would not make any major decisions about oil production targets. This is due to the market's instability, mainly the G7 and EU’s price caps on Russian oil.
Dow Jones
The Dow Jones is the best-performing US Index throughout 2022 and has shown the most resilience when the stock market has come under pressure. At the same time, the NASDAQ has been underperforming compared to the S&P 500 and Dow Jones. The price started the day with a decline, only managing to find buyers during and after Powell’s speech. Out of the 30 stocks, only 2 ended the day lower, and Microsoft (NASDAQ:MSFT) saw the strongest increase (+6.16%).
In terms of technical analysis, the price has formed a clear breakout and is trading above most moving averages. However, traders should know that the price is trading with an overbought indication from the Relative Strength Index and Stochastic Oscillator.
Markets are focusing mainly on comments made by the Fed’s expected lower rate hike. It is expected the Fed will increase rates by 0.50% rather than 0.75%. The US stock market was also supported by strong economic figures, which show the economy remains resilient. However, many analysts are questioning whether the price may be overbought and possibly that markets have overreacted.
Investors seem to be concentrating on the fact that the Fed will lower the pace in December but have ignored other comments. The Fed chairman has advised that interest rates will continue to rise higher than initially expected and remain high in the long term. The interest rate target has remained the same but may take an extra month or two.
Of course, it is important for traders to consider the price and not trade against the trend, but at the same time, it is important to remember that certain pressures remain. Over the next 24 hours, investors will mainly concentrate on the continued market reaction. The price will also likely be influenced by today’s PCE Price Index, Manufacturing PMI, and tomorrow’s nonfarm payrolls.