[ad_1]
The yield on the 10-year Treasury fell to 3.91 per cent from 4.03 per cent late Wednesday. It was above 5 per cent in October, at its highest level since 2007, and the sharp drop since then has given the stock market a big boost.
Owners of office parks, hotels and other real estate, which benefit from lower interest rates, were some of Thursday’s bigger winners. Real-estate stocks rose 2.6 per cent for one of the best gains among the 11 sectors that make up the S&P 500 index, including a 7.2 per cent jump for Boston Properties.
Banks were also strong. High interest rates have hurt the industry’s players a rung or two in size below the behemoth banks and helped cause three high-profile collapses earlier this year. Lower interest rates could ease the pressure.
Zions Bancorp, Fifth Third Bancorp, Comerica and Regions Financial all jumped more than 8 per cent.
All told, the S&P 500 rose 12.46 points to 4,719.55. The Dow gained 158.11 to 37,248.35, and the Nasdaq climbed 27.59 to 14,761.56.
But the recent rally for stocks and drop for Treasury yields seem to be banking on the Federal Reserve pulling off what was considered a long shot not long ago.
Loading
The hope is that the Fed can manage its interest-rate policy exactly right: first, by slowing the economy and hurting investment prices enough through high interest rates to snuff out high inflation, and then by making conditions easier at the right time to prevent the economy from slowing too much and sliding into a painful recession.
That’s still not assured, as both Fed officials and cautious investors are warning.
One threat is that the economy stays too hot, which would keep upward pressure on inflation and could force the Fed to keep rates high for longer than expected.
A couple of reports on Thursday indicated the economy may be stronger than economists had forecast. One showed US shoppers spent more at retailers in November than October, when economists were forecasting a decline. Another report said fewer US workers applied for jobless benefits last week, a signal of a resilient job market.
Treasury yields briefly undid some of their declines following the reports. But traders are still betting on a high probability that the Federal Reserve will cut its main interest rate by at least 1.50 percentage points next year, according to data from CME Group. That’s double what the median Fed official is expecting.
“Our view is that the market is pricing too fast a pace of cuts,” said Solita Marcelli, chief investment officer America at UBS Global Wealth Management.
Critics have said the amount of rate cuts that traders are expecting is unlikely unless the US economy falls into a recession.
In stock markets abroad, indexes were mixed across Europe and Asia. Japan’s Nikkei 225 slumped 0.7 per cent as hopes for US rate cuts drove the value of the dollar down against the yen. That can hurt Japanese exporters.
[ad_2]
Source link
