The data from growth rates and especially inflation for the first quarter further distance the start of the downward cycle of interest rates by the Fed – Steep rise in bond yields
Wall Street stumbled on Thursday as investors couldn't ignore new hurdles in the way of the big goal of monetary easing from the front growth rates and especially inflation. Thus, all the indices moved into negative territory, although they at least managed to limit the large losses, over 1%, of the first hours of the session.
On the board, the Dow Jones finally “closed” with a fall of 0.98% at 38,085 points, the S&P 500 fell by 0.46% at 5,048 points, thus managing to stay above the psychological limit of 5,000 points and the Nasdaq slipped 0.64% to 15,611.
In the bond market, respectively, yields jumped to five-month highs with the 10-year yield adding five points to over 4.7% at 4.704 % and the 2-year to rise to 4.995%, although earlier it had exceeded the 5% limit.
Market sentiment weighed down after data from the growth and inflation front rekindled the threat of stagflation and further complicated the landscape the Federal Reserve is called upon to manage.
Growth rates for the first quarter came in well below expectations at 1.6%. Meanwhile for the first quarter consumer prices rose to 3.4%, up from 1.8% in the final quarter of 2023 and the personal consumption expenditures (PCE) index stood at 2.5% with structural PCE almost doubling from 2% to 3.7%.
Although investors are waiting to see the further path of the March PCE index, which is released on Friday, as it is the Fed's favorite inflation gauge, just a few 24 hours before the next council meeting, it is a fact that the messages regarding the scope for monetary policy easing are not encouraging.
The board has made it clear that it will not discuss a change of course unless it is satisfied that inflation has entered a steady downward trajectory towards the 2% target. And with inflation rising rather than subsiding, the market is now writing off any chance of a rate cut in the first half of the year, while shrinking the odds of a cut at the September meeting, which has been the most likely scenario so far.
The new forecasters now “see” only one rate cut for this year, at the meeting in November or December, out of at least six they expected at the start of the year.
At the same time, the market is trying to manage the controversial messages from the field of first quarter corporate results.
Tellingly, Meta's stock plunged nearly 11% today as, despite a jump in Q1 revenue, it reported weaker-than-expected sales and mainly prepared investors for a significant further increase in its spending on this year in an effort to remain at the forefront of artificial intelligence.
Meta's announcement affected market expectations ahead of tonight's earnings release from Microsoft and Alphabet (after market close); raising questions about when companies will actually take advantage of new AI capabilities and the huge investments companies have been forced to make.
This concern has kept pressure on Big Tech stocks alive, among Alphabet, Microsoft and Amazon.
Meanwhile, disappointing first-quarter performance kept shares of IBM, Caterpillar, Honeywell, Comcast and Southwest Airlines on a downward trajectory.
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On the other hand, the positive results allowed the shares of Deutsche Bank, Merck and Chipotle Mexican Grill to move against the negative current and take profits. In fact, the Deutsche Bank stock “caught” a 52-week high.
