In the latest inflation report, Wall Street traders responded swiftly, causing stocks and bonds to slide as the Federal Reserve signaled it won’t be rushing to cut rates this year. Oil prices surged amid renewed geopolitical tensions.
Equities continued their decline in April, with the S&P 500 falling around 1% following the consumer price index exceeding expectations for the third consecutive month. This led to a hawkish shift in the Treasury curve, with 10-year yields surpassing 4.5% and Fed swaps indicating bets on only two rate cuts for 2024. Additionally, concerns about potential missile or drone strikes by Iran or its proxies on Israel added to the negative sentiment.
The Fed, inching closer to its 2% inflation target, faces the challenge of mounting price pressures that may not be just temporary. Recent inflation data has upended market expectations, with the central bank considering a pivot later this year. However, with inflation showing no signs of abating, investors are bracing for a prolonged period of higher rates.
The release of the latest consumer price index figures, which exclude food and energy costs, revealed a 0.4% increase from the previous month and a 3.8% rise from a year ago. These numbers, along with the strong jobs report from last week, complicate the timing of potential rate cuts by the Fed.
Despite early hopes for rate cuts in 2024, the robust economic growth has shifted expectations. The likelihood of a rate hike, though still low, is now being considered by some experts. The Fed’s stance on inflation and rate cuts will be crucial in determining the future direction of the market.
As investors grapple with the implications of the latest inflation data, the focus now shifts to upcoming earnings reports as a potential support for the stock market. However, uncertainties about future rate cuts and inflation trends continue to loom large, creating a challenging environment for traders and policymakers alike.