S&P 500 Rises Almost 2%; Apple Down In Late Hours: Markets Wrap

"Given how far we have come, along with the uncertainties and risks we face, the committee is proceeding carefully," Federal Reserve Chair Jerome Powell says at a news conference following the central bank's decision to hold interest rates at a 22-year high for a second straight meeting.

(Bloomberg) -- Stocks climbed a day after the Federal Reserve hinted it may be done with hikes, with traders awaiting Friday's jobs report. In late hours, Apple Inc. sank on a stagnant December-quarter sales outlook.

In a rally also fueled by oversold conditions and positioning, the S&P 500 added almost 2% — its best session since April. The market's “fear gauge” — the VIX — fell below 16 and breached a key technical level. Long-term Treasuries outperformed, with 30-year yields down 13 basis points to 4.8%. The dollar dropped. The pound gained as the Bank of England pushed back on talk of rate cuts. Oil topped $82.

Read: Powell Touts Tight Financial Conditions, Causing Them to Loosen

In the run-up to the jobs data, a report showed US labor productivity advanced by the most in three years, helping to alleviate the inflationary impact of recent wage growth. Continuing jobless claims rose for a sixth straight week, indicating those losing their jobs are starting to have more trouble finding new ones. Economists are forecasting non-farm payrolls rose by 180,000 in October following September's gain of 336,000.

“Friday payrolls will be critical,” said Priya Misra, portfolio manager at JPMorgan Asset Management. “If we get a weak report, rates will continue their move lower, but financial conditions may not loosen further since a recession may look more imminent. A strong report and then the market will watch the Fed nervously to see if they will react.”

A survey conducted by 22V Research showed 52% of investors expect Friday's data to be “risk-on” — and only 14% think it will be “risk-off”. This is the most optimistic investors have been since the firm started the surveys a year ago. In addition, 41% of those who were polled think average hourly earnings will be the most-important indicator, followed by payrolls.

Read: Who Wins in Bond Rally? Think About Battered Banks: Surveillance

While the Federal Open Market Committee kept open the prospect of additional policy action on strong economic growth, Jerome Powell speculated that Treasury yields at lofty levels could instead help the central bank keep monetary conditions restrictive to wring out the inflationary excesses of this business cycle.

“From our vantage point, the FOMC signaled the conclusion of the rate hike cycle,” said Spencer Hakimian at Tolou Capital Management. Combined with the better-than-expected data in the Treasury quarterly refunding announcement (QRA), “and we believe tailwinds exist across the curve in Treasuries going into year-end.”

To Jose Torres at Interactive Brokers, market players are front-running the possibility of rate cuts in the near future amid bets the Fed is done tightening — even though Powell said easing is not currently being discussed.

Warning

In fact, a growing chorus of investors is cautioning against prematurely declaring that the US bond market's brutal rout is finally over for good.

Hedge fund K2 Asset Management is predicting that benchmark 10-year Treasury yields will rise back to 5% — from 4.66% — while Franklin Templeton says they could peak at 5.25% — a level last seen in 2007. At Citadel Securities, global head of rates trading Michael de Pass says the Treasury market remains “very much dependent on the data,” leaving the risk that the market's euphoric mood could change. And Barclays Plc co-head of global markets Stephen Dainton said it is “very unlikely” the Fed is done tightening policy.

“We got a hold from the Fed that was mostly hawkish — but just dovish enough to keep a lid on future tightening expectations,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “Whatever the market thinks the Fed thinks, it will still come down to the data and that makes Friday's jobs data all the more important. We continue to believe that the US economy remains robust enough to require further tightening.”

Corporate Highlights:

Qualcomm Inc. jumped after the largest seller of smartphone chips gave a bullish revenue forecast.
Starbucks Corp.'s revenue beat expectations in the latest sign that diners aren't quitting their lattes even in tough economic conditions.
Palantir Technologies Inc. surged after the company reported the fourth consecutive quarter of profitability and highest earnings since its founding 20 years ago.
PayPal Holdings Inc. climbed after the payments giant boosted its profit outlook and reported increased spending on its platforms.
ConocoPhillips jumped after the oil explorer boosted investor payouts and raised its production outlook.
Eli Lilly & Co. beat Wall Street's estimates for third-quarter revenue as its star diabetes drug Mounjaro outran expectations.
Moderna Inc. slid after it said it expected revenue to fall sharply next year to well below what analysts were expecting.
Beyond Meat Inc. cut its revenue forecast for the second time in three months amid sagging demand for its plant-based proteins.
Airbnb Inc. gave a disappointing outlook for the fourth quarter, citing “greater volatility” in the economic environment that it expects will slow demand for travel.
Six Flags Entertainment Corp. agreed to merge with Cedar Fair Entertainment Co. in an all-stock deal that will value the combined businesses at about $8 billion including debt and will create one of the biggest theme park operators in the Americas.

Key events this week: