© Reuters. FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 27, 2023. REUTERS/Brendan McDermid/File Photo

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks rallied and the S&P registered its highest close of the year on Friday, starting December on an upbeat note as remarks from Federal Reserve Chair Jerome Powell bolstered the view that key policy rates have peaked.

All three major U.S. stock indexes advanced, with economically sensitive transports and smallcaps enjoying the most robust gains.

“Those sectors – the cyclicals – they’re the most hated parts of the market year-to-date, (and they) are the parts that are leading,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina. “On the first day of December, when everybody’s looking for a Santa Claus rally, it probably carries a little bit of extra weight.”

“If December starts out strong, it’s going to make folks jump on board and chase this rally,” Ladner added.

All three indexes notched their fifth consecutive weekly percentage gains. On Thursday, they wrapped up a banner month in which the and the Nasdaq registered their biggest one-month percentage gains since July 2022, and the Dow closed at its highest level since January 2022.

In prepared remarks, Powell acknowledged the central bank’s need to “move forward carefully” amid signs of economic softening, as the risks of over- and under-tightening its monetary policy are becoming more balanced.

“Earlier in the week, (Fed Governor Christopher) Waller, one of the Fed’s biggest hawks, said as inflation decreases, we’re going to drop rates,” Ladner said. “The market thought that Powell would push against those remarks, and he didn’t.

“(Powell) is setting the market up for rate cuts next year.”

Data released on Friday showed U.S. manufacturing continues to contract as factories contend with decreasing new orders, falling inventories and labor pressures.

The rose 294.61 points, or 0.82%, to 36,245.5, the S&P 500 gained 26.83 points, or 0.59%, at 4,594.63 and the added 78.81 points, or 0.55%, at 14,305.03.

Among the 11 major sectors of the S&P 500, real estate was the biggest percentage gainer, while communication services was the sole decliner.

Pfizer (NYSE:) slid 5.1% as the drugmaker dropped plans to advance a twice-daily version of oral weight-loss drug danuglipron into late-stage studies, delaying its entry into the lucrative market.

U.S.-listed shares of Alibaba (NYSE:) slipped 1.2% following Morgan Stanley’s downgrade of the e-commerce giant’s stock.

Marvell (NASDAQ:) Technology shed 5.3% after the chipmaker’s fourth-quarter revenue forecast fell short of Street estimates.

Ulta Beauty (NASDAQ:) surged 10.8 after the cosmetics retailer raised the lower end of its annual net sales forecast and named Paula Oyibo its new chief financial officer.

Paramount Global jumped 9.8% following a report the media company and Apple (NASDAQ:) have discussed bundling their streaming services at a discount.

Advancing issues outnumbered decliners on the NYSE by a 5.93-to-1 ratio; on Nasdaq, a 3.32-to-1 ratio favored advancers.

The S&P 500 posted 59 new 52-week highs and one new low; the Nasdaq Composite recorded 106 new highs and 82 new lows.

Volume on U.S. exchanges was 12.34 billion shares, compared with the 10.58 billion average for the full session over the last 20 trading days.

© Reuters. FILE PHOTO: Bull statues are placed in font of screens showing the Hang Seng stock index and stock prices outside Exchange Square, in Hong Kong, China, August 18, 2023. REUTERS/Tyrone Siu

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON (Reuters) – MSCI’s global stock index gained ground on Friday, while the U.S. dollar slipped after Federal Reserve Chair Jerome Powell vowed to move “carefully” on interest rates.

Treasury yields were down in choppy trading after data showed a continued slump in manufacturing and Powell said the risks of hiking interest rates too much and slowing the economy more than necessary, have become “more balanced” with the risks of not hiking enough to control inflation.

“Powell did his utmost to subtly convince markets of the Federal Reserve’s commitment to holding rates in restrictive territory for a prolonged period of time,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“But we doubt this will deter investors betting on a dramatic pivot in early 2024,” he added citing comments from Fed Governor Christopher Waller earlier this week. Widely seen as a more hawkish policymaker, Waller flagged the possibility of lower interest rates if inflation continued to ease.

“By providing the terms – and the timeline – for a rules-based reduction in policy rates next year, Governor Waller earlier this week cleared the way for a sustained, data-driven decline in yields and the dollar.”

The rose 85.32 points, or 0.24%, to 36,036.21, the gained 5.88 points, or 0.13%, to 4,573.68 and the dropped 7.74 points, or 0.05%, to 14,218.48.

The pan-European index rose 0.97%, while MSCI’s gauge of stocks across the globe was up 0.21% after registering its biggest monthly gain in three years for November.

Earlier, the Institute for Supply Management (ISM) said its manufacturing PMI was unchanged at 46.7 last month. It was the 13th consecutive month that the PMI stayed below 50, indicating a contraction in manufacturing and the longest such stretch since the period from August 2000 to January 2002.

Mona Mahajan, senior investment strategist at Edward Jones said the data supported the idea of lower inflation and a gradually cooling economy.

“We’re encouraged that markets aren’t pulling back in any meaningful way after the strong November and may have scope to build on those gains if we continue to see these fundamental drivers play out,” said Mahajan.

In Treasuries, benchmark 10-year notes were down 8.4 basis points to 4.266%, from 4.35% late on Thursday. The 30-year bond was last down 6.3 basis points to yield 4.448%. The was last was down 11.7 basis points to yield 4.5984%.

In currencies, the fell 0.058%, with the euro down 0.2% to $1.0864. The Japanese yen strengthened 0.64% versus the greenback at 147.25 per dollar.

Sterling was last trading at $1.2665, up 0.34% on the day supported by expectations that the Bank of England will take longer than either the Fed or the ECB to cut rates.

Oil prices extended losses slightly after Thursday’s 2% drop, with the market unconvinced that the latest round of OPEC+ production cuts will be able to lift prices from a recent slump.

recently fell 0.13% to $75.86 per barrel and was at $80.75, down 0.14% on the day.

In precious metals, added 1.1% to $2,058.19 an ounce. U.S. gained 0.64% to $2,051.10 an ounce.

© Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell reacts to introductory remarks before speaking on “Monetary Policy Challenges in a Global Economy” during the international Monetary Fund’s (IMF) annual research conference on “Global Interdependence” in Was

By Howard Schneider

ATLANTA (Reuters) -The risks of the Federal Reserve moving too far with interest rate hikes, and slowing the economy more than necessary, have become “more balanced” with those of not moving high enough to control inflation, Fed Chair Jerome Powell said on Friday in remarks reaffirming the U.S. central bank’s intent to be cautious in its upcoming monetary policy decisions.

Noting that a key measure of inflation averaged 2.5% over the six months ending in October, near the Fed’s 2% target, Powell said it was clear that U.S. monetary policy was slowing the economy as expected with a benchmark overnight interest rate “well into restrictive territory.”

“The full effects of our tightening have likely not yet been felt. The forcefulness of our response to inflation also helped maintain the Fed’s hard-won credibility, ensuring that the public’s expectations of future inflation remain well-anchored,” Powell said in remarks at Spelman College in Atlanta. “Having come so far so quickly, the (Federal Open Market Committee) is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced.”

Powell reiterated, as his colleagues have in recent weeks, that it was still too early to declare the Fed’s inflation fight finished, with prices rising 3.0% annually by the measure the central bank uses to set its target. Prices as of October were up 3.5% when stripped of food and energy costs, a measure the Fed sees as a better guide of inflation’s trend.

“We are prepared to tighten policy further if it becomes appropriate to do so,” he said.

But his remarks also reflected increased confidence that the current 5.25%-5.50% policy rate may well be adequate to complete the job. The Fed meets on Dec. 12-13 and is expected to leave its benchmark rate unchanged for the third meeting in a row.

“(Powell) used the word ‘balanced,’ and the message he’s sending is the Fed is not going to change its rhetoric, but things are going the way they want them to go and they’re not going to raise rates again,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “They’re done, they’re finished, and that’s what the market thinks.”

U.S. stocks reversed earlier losses and were trading marginally higher after Powell’s remarks, and traders of interest rate futures added to bets the Fed would leave rates steady at its December and January policy meetings, and then start cutting rates at its March meeting.

Powell fielded questions after his speech in a conversation with Spelman College President Helene Gayle. He was scheduled to be joined by Fed Governor Lisa Cook, who earned her bachelor’s degree at the historically black institution, in an afternoon roundtable discussion with local entrepreneurs.

‘SOFT LANDING’

The Fed chief said policymakers still regard the uncertainty in the economic outlook to be “unusually elevated,” one factor in their insistence that rates may still need to rise.

But he also said that the broad outlines of the hoped-for “soft landing” seemed to be falling into place, with the job market still strong even as growth in spending and output slows and price pressures abate.

“My colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand,” Powell said.

“The pace at which the economy is creating new jobs remains strong, and has been slowing toward a more sustainable level … Wage growth remains high, but has been gradually moving toward levels that would be more consistent with 2% price inflation over time, and real wages are growing again as inflation declines,” he said.

Shortly before Powell delivered his remarks, a key reading on the health of the U.S. manufacturing sector showed activity there remained subdued and factory employment declined. The Institute for Supply Management’s Purchasing Managers Index has now indicated the sector has been in contraction for 13 straight months, the longest such run in more than two decades, as demand for goods continues to soften.