[New York Market Watch]'Despite Bubble Concerns, Strong Earnings Spur Bargain Hunting—Stocks Up, Bonds Down'

(Seoul=Yonhap Infomax) International Economics Department = On the 5th (U.S. Eastern Time), all three major U.S. stock indices rebounded in the New York financial markets.

Following recent declines driven by concerns over an artificial intelligence (AI) bubble, bargain-hunting sentiment strengthened, with technology shares rallying on robust earnings.

Additionally, a solid private employment report helped improve recently subdued investor sentiment.

U.S. Treasury prices fell across the board. The decline reflected stronger-than-expected economic data released by private institutions amid the ongoing government shutdown.

Expectations that the U.S. Supreme Court could potentially block President Donald Trump’s reciprocal tariff policy also contributed to the weakness in Treasuries.

On the same day, U.S. employment data provider Automatic Data Processing (ADP) announced that private sector employment increased by 42,000 in October, surpassing the market consensus of 22,000.

The U.S. dollar weakened for the first time in six sessions.

Although rising Treasury yields initially supported the dollar, the currency reversed course on speculation that the Trump administration’s reciprocal tariff policy could be invalidated.

New York oil prices declined for a second consecutive session. The prospect of increased Canadian crude production and a sharp rise in U.S. crude inventories weighed on prices.

Meanwhile, according to the CME FedWatch Tool, as of 15:48 in New York, the federal funds rate futures market priced in a 62.7% probability that the Federal Reserve will cut rates by 25 basis points in December, down from 68.6% in the previous session.

Equity Markets

All three major U.S. stock indices closed higher in New York.

Bargain-hunting emerged after the sharp sell-off in technology stocks, broadening gains.

However, heavy selling in the final minutes of trading erased nearly half of the day’s gains, underscoring persistent concerns over elevated valuations and the AI bubble narrative.

On the 5th (U.S. Eastern Time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed up 225.76 points (0.48%) at 47,311.00.

The S&P 500 rose 24.74 points (0.37%) to 6,796.29, while the Nasdaq Composite gained 151.16 points (0.65%) to finish at 23,499.80.

Bargain-hunting in AI and semiconductor-related stocks, which had plunged the previous day, lifted the broader market.

The Philadelphia Semiconductor Index, composed of AI and semiconductor stocks, surged 3.02%. While index heavyweight Nvidia fell 1.76% and TSMC and Arm closed slightly lower, the remaining 27 constituents all advanced.

Micron Technology soared 8.93%, AMD rose 2.31%, and both Qualcomm and Intel posted gains of over 3%.

AMD’s strong earnings report after the previous session helped ease concerns over an “AI bubble,” adding to the optimism. AMD posted third-quarter revenue of $9.25 billion and net income of $1.2 billion, marking a record quarterly revenue.

Most mega-cap tech stocks with market capitalizations above $1 trillion also advanced. While Nvidia and Microsoft both declined by over 1%, the rest of the group posted gains.

Tesla jumped more than 4%, while Broadcom and Alphabet both gained over 2%.

However, in the last 15 minutes of trading, the indices gave back about half of their gains, reflecting ongoing concerns over high valuations and the AI bubble. The Nasdaq, which was up as much as 1.23% intraday, ended with a 0.64% gain.

Phil Blancato, chief market strategist at Osaic, said, “The market breadth is still not wide. There are winners and losers in the AI space, and with valuations stretched, investors need to be very selective about where to allocate capital in AI going forward.”

Anthony Saglimbene, chief market strategist at Ameriprise Financial, commented, “Today’s market had a bit of a bargain-hunting tone, which has been a theme since April. The economic data released today may have helped point the market in an optimistic direction.”

With the U.S. federal government shutdown ongoing, official government statistics remain unavailable. The shutdown reached its 36th day, setting a new record for duration.

Privately released economic indicators pointed to continued resilience in the U.S. economy.

The Institute for Supply Management (ISM) reported that the U.S. services PMI rose to 52.4 in October, up 2.4 points from September’s 50.0, indicating an acceleration in expansion.

According to ADP’s National Employment Report, private sector employment increased by 42,000 in October, beating the consensus estimate of 25,000.

By sector, all industries except technology, consumer staples, and real estate advanced. Consumer discretionary and communication services both rose more than 1%.

The U.S. Supreme Court’s hearing on the legality of reciprocal tariffs was generally unfavorable to President Donald Trump. All nine justices, regardless of their ideological leanings, expressed skepticism toward the Trump administration’s arguments.

As a result, shares of automakers such as Ford and General Motors rose nearly 3%, while Caterpillar gained 4%, on expectations that a ruling against Trump’s tariffs would benefit auto and heavy equipment manufacturers.

According to the CME FedWatch Tool, the probability of the federal funds rate remaining unchanged through December jumped to 37.4%, up from 31.4% at the previous session’s close.

The CBOE Volatility Index (VIX) fell 0.99 points (5.21%) to 18.01.

Bond Markets

U.S. Treasury prices fell, with longer-dated maturities underperforming and the yield curve steepening (bear steepening).

Stronger-than-expected economic data from private institutions, combined with the prospect of increased Treasury issuance, pressured bond prices. Growing expectations that the Supreme Court could block President Trump’s reciprocal tariffs also contributed to the weakness.

According to Yonhap Infomax’s overseas rates screen (screen number 6532), as of 15:00 (U.S. Eastern Time) on the 5th, the 10-year Treasury yield rose 6.70 basis points to 4.1570% from the previous session’s 15:00 level.

The 2-year yield, which is sensitive to monetary policy, climbed 5.00 basis points to 3.6320% over the same period.

The 30-year yield, the longest maturity, rose 6.50 basis points to 4.7360%.

The spread between the 10-year and 2-year yields widened to 52.50 basis points from 50.80 basis points, the highest since mid-last month.

Bond yields move inversely to prices.

After trading sideways during European hours, Treasury yields began to climb steadily from 08:15 in New York following the ADP private employment report, with further bearish catalysts emerging throughout the session.

The benchmark 10-year yield briefly touched 4.1630%, the highest since the 7th of last month.

According to ADP, U.S. private employment increased by 42,000 in October, beating the consensus forecast of 25,000. The previous month’s figure was revised up from a decrease of 32,000 to a decrease of 29,000.

This was the first increase in private employment since July (+104,000). With the prolonged federal government shutdown halting official employment data releases, attention to ADP’s report has grown.

Nela Richardson, chief economist at ADP, said, “Private employers added jobs in October for the first time since July, but the pace of hiring remains modest compared to earlier this year. Wage growth has been nearly flat for over a year, indicating a balance between labor supply and demand.”

Fifteen minutes later, the Treasury’s quarterly refunding announcement (QRA) indicated that the size of Treasury issuance for the next three months through January would remain unchanged from the previous three months. While forward guidance suggested no immediate changes, the Treasury hinted at a possible increase in issuance in subsequent quarters.

The Treasury stated, “We expect to maintain the auction sizes of nominal coupon and floating-rate notes (FRNs) for at least the next few quarters,” but added, “We have begun preliminary consideration of increasing the auction sizes of nominal coupons and FRNs in the future.” This suggests issuance could rise after the next few quarters.

The ISM’s services index also beat expectations. The ISM reported that the services PMI rose 2.4 points to 52.4 in October, exceeding the consensus estimate of 50.8 and marking the highest level in eight months.

Among sub-indices, the new orders index—a leading indicator—jumped 5.8 points to 56.2, the highest since October last year. The employment index rose 1.0 point to 48.2.

Bill Adams, chief economist at Comerica Bank, said, “This survey provides further evidence of the disconnect between positive economic growth and modest job gains.”

During the Supreme Court’s oral arguments on reciprocal tariffs, most justices expressed skepticism toward the Trump administration’s position. As a result, betting markets saw a sharp drop in the probability that the Court would rule in favor of Trump’s tariffs, falling to the high 20% range in the afternoon session from just above 50% before the hearing began.

If the Court rules the tariffs unlawful, previously collected tariffs may need to be refunded.

Art Hogan, chief market strategist at B. Riley Wealth, said, “Today’s oral arguments reminded everyone that this issue remains unresolved and that its impact could be extremely significant.”

According to the CME FedWatch Tool, as of 15:48 in New York, the federal funds rate futures market priced in a 62.7% probability of a 25bp rate cut by the Federal Reserve in December, down from 68.6% in the previous session.

Foreign Exchange Markets

The U.S. dollar weakened for the first time in six sessions.

The dollar initially gained on strong private employment and services data, which pushed Treasury yields higher.

However, the currency reversed course as speculation grew that the Trump administration’s reciprocal tariff policy could be invalidated.

According to Yonhap Infomax (screen number 6411), as of 16:00 (U.S. Eastern Time) on the 5th, the dollar-yen rate stood at 154.124 yen, up 0.496 yen (0.323%) from the previous New York close of 153.628 yen.

The euro-dollar rate was $1.14884, up $0.00086 (0.075%) from the previous session.

Joachim Nagel, president of Germany’s Bundesbank, dismissed the possibility that eurozone inflation would fall short of target, stating, “In the medium term, we are quite close to the target.”

François Villeroy de Galhau, governor of the Bank of France, also cautioned against complacency on inflation.

The dollar index (DXY), which measures the greenback against six major currencies, fell 0.029 points (0.029%) to 100.186.

The dollar initially strengthened in response to the ADP private employment and ISM services PMI data.

According to ADP, private employment increased by 42,000 in October, beating the consensus of 25,000. The previous month’s figure was revised up from a decrease of 32,000 to a decrease of 29,000.

According to ISM, the October services PMI rose 2.4 points to 52.4, exceeding the consensus of 50.8. The PMI uses 50 as the threshold between expansion and contraction.

Carl Shamota, chief market strategist at Corpay, said, “A range of available indicators point to the resilience of the U.S. labor market, making it increasingly difficult to argue for an aggressive monetary policy path.”

The dollar index briefly rose to 100.359 as expectations for a Fed rate cut receded.

Subsequently, the dollar began to move in response to the Supreme Court’s arguments on the legality of reciprocal tariffs.

Most justices expressed skepticism toward the Trump administration’s rationale for imposing reciprocal tariffs.

Chief Justice John Roberts stated, “The power to levy taxes on the people has always been a core prerogative of Congress. These tariffs appear to generate revenue, which is clearly defined as Congress’s role under the Constitution,” raising the possibility that President Trump’s tariffs may have infringed on congressional authority.

If the administration loses, previously collected tariffs may need to be refunded, reviving fiscal concerns, which in turn pushed Treasury yields higher and weighed on the dollar.

Steven Englander, strategist at Standard Chartered (SC), predicted, “If oral arguments create expectations that the tariffs will be ruled illegal, U.S. Treasury yields will rise and the dollar will fall significantly.”

Scotiabank noted in a report, “If the dollar index breaks above the low 100s, the dollar could see a significant rebound in the coming weeks. However, if the rally stalls and reverses near the 100 level, the sideways range seen since mid-year is likely to persist.”

The pound-dollar rate was $1.30502, up $0.00313 (0.240%) from the previous session.

Market participants are focused on the Bank of England’s (BOE) monetary policy meeting on the 6th. The likelihood of a rate hold outweighs that of a cut.

Grant Slade, UK economist at Morningstar, said, “We expect the BOE to keep the policy rate at 4%, but this decision will be much more finely balanced than at the September meeting.”

The offshore dollar-yuan (CNH) rate was 7.1303 yuan, down 0.0047 yuan (0.066%).

Oil Markets

New York oil prices fell for a second straight session. The prospect of increased Canadian crude production and a sharp rise in U.S. crude inventories pressured prices.

On the 5th (U.S. Eastern Time) at the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude settled at $59.60 per barrel, down $0.96 (1.59%) from the previous session. This marked the first time since the 22nd of last month that WTI closed below $60 per barrel.

WTI remained weak throughout the session and extended losses late in the day as the $60 level failed to hold.

The Canadian government’s budget announcement the previous day signaled a shift away from a cap on greenhouse gas emissions, instead favoring market- and technology-based approaches to emissions reduction. The cap, which was set to take effect after 2030, had faced opposition from the energy industry.

Phil Flynn, senior market analyst at Price Futures Group, said, “Canada is abandoning its controversial oil and gas (greenhouse gas) emissions cap, which could allow for increased crude production.”

The U.S. Energy Information Administration (EIA) reported that U.S. crude inventories for the week ended October 31 rose by 5.202 million barrels, far exceeding analysts’ expectations for a 600,000-barrel increase.

U.S. crude inventories rose for the first time in three weeks, with the increase the largest since the fourth week of July.

Matt Smith, analyst at Kpler, said, “Rising imports and seasonal refinery maintenance contributed to the increase in U.S. crude inventories.”

Gasoline inventories fell by 4.279 million barrels, much more than the expected 1.1 million-barrel decline, limiting further downside in oil prices.

Gasoline inventories have now fallen for five consecutive weeks, though the pace of decline slowed from the previous week’s 5.941 million-barrel drop.

syyoon@yna.co.kr

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