Market Snapshot: Dow jumps almost 750 points as stocks end higher, bond yields fall after reports Fed may shift to smaller rate hikes after November

by | Oct 21, 2022 | Stock Market

U.S. stocks closed sharply higher Friday as investors weighed a story from the Wall Street Journal and comments from Federal Reserve officials suggesting that the central bank might shift to smaller interest-rate rises after its November meeting. Investors were also coping with intraday volatility in stocks as around $2 trillion in notional value of options on stocks, indexes and exchange-traded funds expired, or were set to expire, on Friday, according to Goldman Sachs.

How stock indexes traded
The Dow Jones Industrial Average
DJIA,
+2.47%
jumped 748.97 points, or 2.5%, to close at 31,082.56.

The S&P 500
SPX,
+2.37%
climbed 86.97 points, or 2.4%, to finish at 3,752.75.

The Nasdaq Composite
COMP,
-0.81%
gained 244.87 points, or 2.3%, to end at 10,859.72.

For the week, the Dow rose 4.9%, the S&P 500 gained 4.7% and the Nasdaq advanced 5.2%. All three indexes booked their biggest weekly percentage gains since June, according to Dow Jones Market Data. What drove markets U.S. stocks jumped Friday as investors considered a report from The Wall Street Journal, along with comments by San Francisco Fed president Mary Daly, suggesting that the Federal Reserve could potentially begin to back off slightly from its aggressive pace of interest-rate hikes late this year, “We are starting to hear some rumblings that the Fed might be at least easing the aggressive nature of the magnitude of the rate hikes,” said Mona Mahajan, senior investment strategist at Edward Jones, by phone Friday. Markets had been “very firmly” pricing in a 75-basis point hike in December, as well as next month, she said While the U.S. central bank appears set to again lift its benchmark rate by three-quarters of a percentage point at its policy meeting in early November, there may be some debate among Fed officials over whether to hike rates by 50 basis points in December. “That is the first step in what we call the beginning of the end,” said Mahajan. “Over time we’d expect the pace of rate hikes to slow,” followed by a pause at some point, and then an assessment of where inflation and the economy are heading, she said. Fed funds futures traders on Friday priced in a lower probability of a 75 basis-point hike in December, with odds falling to less than 50% from 75% before the report, according to the CME’s FedWatch tool. Meanwhile, Treasury yields took a break from their recent climb, helping to take some of the pressure off stocks. The yield on the two-year Treasury note
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