US Open: American Indices Rally on Anticipated End of Fed Balance Sheet Reduction

American indices continue the revival sparked by Jerome Powell's remarks yesterday, which suggested not only a readiness for interest rate cuts but also for the conclusion of the balance sheet reduction process (QT). The US Federal Reserve has been shrinking its enormous asset balance since 2022 by allowing bonds to mature without reinvestment. Over a quarter of the total balance has been reduced since 2022, though the total still remains elevated relative to the record purchases initiated in early 2020. Should the Fed decide to halt the balance sheet reduction, maturing bonds would necessarily have to be rolled over. This policy shift could lead to a general decline in market interest rates. Currently, yields remain at elevated levels, even amid the reduction of short-term interest rates.

It is worth noting that Donald Trump is once again escalating tensions with China, signaling a potential suspension of edible oil purchases from the country. In response, China is reportedly considering halting soybean purchases from the US, sparking unease among farmers. Nevertheless, positive signals concerning trade negotiations currently outweigh the negative ones in the market.

ASML reported solid financial results, showcasing a high level of orders for chip manufacturing machinery, which demonstrates the sustained momentum of the AI trend. Investors remain optimistic ahead of tomorrow's earnings release from the Taiwanese firm TSMC, the world's largest semiconductor manufacturer and a key supplier to companies like Nvidia.

All Key S&P 500 Segments Advance

We are observing gains across the majority of segments within the S&P 500 index today. Notably, the Utilities sector is making the strongest gains, while the largest sector, Technology, is up 1%.

Today we are observing gains in most segments of the S&P 500 index. Source: Bloomberg Finance LP

The US500 is up 0.8% today, which closely aligns with the move in the cash market. Smaller capitalization companies are outperforming, with the Russell 2000 rising by 1.3% at the open. Today's advance recoups over two-thirds of the losses incurred during the last two sessions of last week, effectively negating the bearish signal. Crucially, the index did not breach the largest correction level within the existing trend from May and July, potentially indicating a return to the main upward trajectory. Furthermore, the US500 avoided falling below the 50.0% retracement level of the shorter rally wave that began in early September.. Source. xStation5

Corporate News Highlights:

• Apple (AAPL.US) intends to increase its investments in Vietnam to reduce its operational exposure in China. Concurrently, Bloomberg reports that the company plans to collaborate with China's BYD to test, produce, and package a new product—an alleged home command center. AAPL shares are up approximately 0.8% at the open, though they remain down slightly year-to-date.

• Stellantis (STLA.US) announced plans to invest $13 billion in the US over the next four years to modify its supply chain and minimise the impact of trade tariffs. STLA shares are gaining nearly 0.7% at the open. Stellantis owns brands including Fiat, Chrysler, Jeep, and Peugeot.

• Papa John’s (PZZA.US) soared by as much as 10% at the session open following a Reuters report suggesting that Apollo Global, an asset management firm, may propose a buyout of the company at $64 per share with the intention of taking it private.

• Bank of America (BAC.US) advanced 4% at the open after delivering better-than-expected third-quarter results, driven by increased activity in investment banking and M&A. EPS came in at $1.06, exceeding the market consensus by $0.11. The bank's revenue was also stronger by roughly half a billion, reaching $28.09 billion.

• Morgan Stanley (MS.US) also reported a strong Q3, benefiting from a high volume of transactions and robust performance in its investment banking segment. The firm posted a record 44% jump in investment banking revenue, while assets under management (AUM) reached $8.9 billion, approaching its $10 billion target. The bank's shares are up 6.75% early in the session.