Stocks gain momentum and bonds stay calm as Fed outlook prevails

Stocks advanced and financial markets remained steady on Monday, influenced by a positive Fed outlook that overshadowed a credit downgrade from Moody’s. In Asia, stock markets saw an uptick, mirroring the Friday surge on Wall Street, with investors largely unfazed by Moody’s decision to downgrade the U.S. credit outlook.

Tech stocks, echoing the trend in the U.S. last week, took the spotlight, benefiting from the recent stabilization of long-term Treasury yields, which has boosted optimism for growth-oriented shares dependent on borrowing.

U.S. 10-year Treasury yields maintained stability around 4.646%, consolidating near the top of the range observed since November 3. The dollar, as indicated by the U.S. dollar index, remained close to its post-payrolls-report high of 106.01, settling at around 105.80.

In the Asian markets, Japan‘s Nikkei rose by 0.46%, with chip-related stocks leading the gains. Taiwan’s tech-heavy equity benchmark surged by 1.17%, while Hong Kong‘s Hang Seng posted a 0.49% gain, driven by a strong performance in tech shares. However, mainland Chinese blue chips were marginally lower, and Australia‘s resource-heavy benchmark slipped by 0.13%.

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Nomura Securities strategist Naka Matsuzawa expressed caution, suggesting that equities may be nearing a peak. He noted a shift in market dynamics, stating, “Up until now, the market has interpreted bad economic news as good news, anticipating a pause in Fed rate hikes. Now, with the Treasury market already factoring in a pause, there’s limited room for further declines in Treasury yields, potentially removing support for the stock market. In short, I don’t foresee the stock market rally continuing.”

Despite Moody’s downgrade of the U.S. credit rating to “negative” from “stable” on Friday, the market paid little attention, staying focused on upcoming economic data. Investors are awaiting U.S. consumer prices and retail sales reports scheduled for Tuesday and Wednesday, respectively.

In the commodities market, crude oil prices edged lower on Monday, driven by concerns over weakening demand that overshadowed supply worries. Brent crude futures for January dipped by 35 cents, or 0.4%, to $81.08 a barrel, while U.S. West Texas Intermediate (WTI) crude futures for December were at $76.82, down 35 cents, or 0.5%. Despite these declines, both benchmarks had gained nearly 2% on Friday following Iraq’s expression of support for OPEC+ oil cuts.