(Bloomberg) — Stock markets struggle to regain momentum as data shows the economy is slowing amid stubborn inflation, posing challenges to the Federal Reserve's policy outlook. I couldn't do that.
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Stocks were spooked and bond yields rose after reports that U.S. consumer sentiment had fallen to a six-month low on rising near-term inflation expectations. A slowdown in major sectors prompted bets on Fed rate cuts, while officials continued to repeat the mantra of raising long-term interest rates as they seek to return inflation to their 2% target.
“The Fed is walking a tightrope as it balances its mission of price stability and growth,” said Jeff Roach of LPL Financial. “Although this is not our base case, we do see an increased risk of 'stagflation' which is a concern that the market must address.”
The S&P 500 hovered around 5,220, marking its third consecutive week of gains. This is his longest winning streak since February. The Dow Jones Industrial Average rose for eight straight sessions.
The yield on the 10-year U.S. Treasury note rose 5 basis points to 4.50%. Fed swaps showed traders are fully pricing in a rate cut by November and a second rate cut by the January meeting.
Chris Zaccarelli of the Independent Advisor Alliance says that while inflation statistics have overshadowed most other reports this year, it's important to remember that consumer spending is the main pillar supporting the economy. It is important to keep them.
“Today's lower-than-expected consumer sentiment figures are a warning that consumers should not be taken for granted,” he said. “Additionally, inflation expectations are rising, which is a double whammy for the Fed.”
Zaccarelli also said that if spending slows and inflation rises, “this would be the opposite of the Goldilocks scenario that many were expecting.”
That would put the Fed in “a particularly difficult position, having to choose between responding to the economic slowdown and combating rising inflation expectations,” he concluded.
Dallas Fed President Laurie Logan said it was too early to think about lowering borrowing costs, while President Michelle Bowman said it would not be appropriate for the Fed to cut interest rates in 2024. .
Meanwhile, Chicago Fed President Austan Goolsby said he does not believe inflation is above target despite recent data showing price pressures have increased at the beginning of the year.
Fed Chairman Jerome Powell, speaking after the Fed's April 30-May 1 meeting, said policymakers are likely to keep interest rates high for some time. He also said there was no “stagflation” in terms of growth or inflation.
Citigroup's U.S. Economic Surprise Index fell to its lowest level since January 2023 after a series of weaker-than-expected data from jobs to services to manufacturing. This metric measures the difference between actual announcements and analyst expectations.
“Economic growth slowed sharply in the first quarter and will likely slow for the remainder of 2024,” said Bill Adams of Comerica Bank. “Financial markets still expect the Fed to start cutting rates by the end of the year, and two quarterly percentage point cuts are more likely than one,” he said.
Among several aspects of Friday's Consumer Sentiment Report, Peter Boockvar also referred to the fact that the long-term high interest rate situation has led to a sharp decline in the terms of purchase of big-ticket items.
“A few years ago, when the Fed was aggressively raising interest rates, I said I was more worried about the deaths from a thousand stimulus cuts than about the immediate major economic events or recession,” he said. I firmly hold to that idea.” Author of “The Book Report”.
“This certainly feels more like a 1.5% type of economy rather than the 3% or so that some people still think we are in,” he added.
Strategas' Don Rismiller said the volatility in both growth and inflation indicators has led some central banks, such as the Fed, to take a more hawkish stance.
“If the U.S. labor market is confirmed to be in turmoil, there is a strong possibility that the U.S. economy will move toward lowering interest rates in the near future,” he said. “We're going to hear a lot more talk about the Fed's dual mandate to justify such a change in direction.”
Looking ahead, traders will be keeping an eye on Chairman Powell's remarks at Tuesday's event and a slew of economic reports. The highlight is Wednesday's consumer price index.
“We believe the balance of risks around CPI has tilted interest rates slightly to the bullish side,” Bank of America strategists including Mark Kavanagh said.
Carry remains positive through October and real interest rates look attractive, but market volatility could keep investors on the sidelines, according to TD Securities' Gennady Goldberg and Oscar Muñoz. It is said that there is.
“We expect the Fed to begin easing in September, with growth and inflation data gradually slowing, and we expect it to continue lowering rates in the second half of 2024.”
Company highlights:
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McDonald's Co. is launching a $5 meal deal in the United States, and the burger chain is betting it can lure back penny-pinching consumers.
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Target will not sell LGBTQ-themed products at some of its stores during Pride Month in June, after its profits fell due to last year's backlash.
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Novavax has signed a $1.2 billion licensing agreement with Sanofi that includes the commercialization of a combined COVID-19 and influenza vaccine.
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U.S. regulators' decision on whether to approve Moderna's respiratory syncytial virus vaccine has been delayed by Food and Drug Administration “administrative constraints” as the company works to bring its second product to market.
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HSBC raised its buy on 3M, noting the company's earnings are showing early signs of “a turnaround in growth and an increase in profits due to the manufacturing giant's restructuring.”
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Taiwan Semiconductor Manufacturing Company posted a 60% increase in sales in April as continued demand for artificial intelligence was boosted by the beginning of a recovery in consumer electronics.
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Sweetgreen Co.'s stock soared after the salad chain raised its annual sales forecast and showed improved profitability as it looks to expand.
The main movements in the market are:
stock
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As of 4 p.m. New York time, the S&P 500 was up 0.2%.
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Nasdaq 100 rose 0.3%
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The Dow Jones Industrial Average rose 0.3%.
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MSCI World Index rose 0.3%
currency
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Bloomberg Dollar Spot Index little changed
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The euro was almost unchanged at $1.0772.
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The British pound was almost unchanged at $1.2527.
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The Japanese yen fell 0.2% to 155.78 yen to the dollar.
cryptocurrency
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Bitcoin fell 3.3% to $60,598.01.
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Ether fell 4.1% to $2,898.26.
bond
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The 10-year Treasury yield rose 5 basis points to 4.50%.
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Germany's 10-year bond yield rose 2 basis points to 2.52%.
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The UK 10-year bond yield rose 2 basis points to 4.17%.
merchandise
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West Texas Intermediate crude oil fell 1.2% to $78.33 a barrel.
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Spot gold rose 0.7% to $2,363.83 an ounce.
This article was produced in partnership with Bloomberg Automation.
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