See<\/strong>: Global investors expect China to deliver a massive fiscal stimulus. Here\u2019s why it may never arrive<\/p>\nAlthough the Fed has slowed its pace of interest rate hikes this year against the backdrop of easing inflation in the U.S., the yield on the 10-year treasury note
\n BX:TMUBMUSD10Y
\n jumped this month to its highest level since 2007, startling investors.\u00a0<\/p>\n
\u201cIt is ironic that rates have been moving higher\u201d when inflation is coming down \u201cconsiderably\u201d based on moving averages of the consumer-price index over the past three and six months, said Rick Rieder, BlackRock\u2019s chief investment officer of global fixed income and head of the asset manager\u2019s global allocation investment team, in a phone interview.<\/p>\n
The U.S. stock market ended mostly lower Friday, with the S&P 500
\n SPX
\n suffering a third straight week of losses, according to Dow Jones Market Data. The widely followed index is down 4.8% so far in August, on pace for its biggest monthly loss since December, FactSet data show.\u00a0<\/p>\n
The Nasdaq Composite
\n COMP
\n and Dow Jones Industrial Average
\n DJIA
\n also finished Friday with weekly losses. The technology-heavy Nasdaq joined the S&P 500 in sliding three consecutive weeks.<\/p>\n
There\u2019s some investor concern in the stock market that the strength of the U.S. economy could cause the Fed to increase the tightening of its monetary policy, according to Rieder. He said that fear, combined with an increased supply of U.S. Treasurys, appears to be weighing on equities.<\/p>\n
\u201cThere\u2019s this incredible amount of bill issuance and draining of liquidity that I think is starting to kick in,\u201d said Rieder, referring to Treasury bills, or U.S. government debt that matures within months and has been yielding more than 5% lately.<\/p>\n
Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said by phone that earlier this year the firm took some money out of the equities market, cutting back on tech stocks to invest in Treasury bills. He said that positions the firm to invest in stock-market pullbacks, with Wells Fargo expecting the S&P 500 to end 2023 at 4,100.<\/p>\n
The S&P 500 ended Friday at 4,369.71, down 8.9% from its record close in January 2022, according to Dow Jones Market Data.\u00a0<\/p>\n
In Wren\u2019s view, \u201cthe Fed\u2019s not finished hiking\u201d rates to combat sticky core inflation and Chair Jerome Powell may take the opportunity at the Jackson Hole meeting to signal to the market that the central bank is not close to cutting rates.\u00a0<\/p>\n
Read:<\/strong> Long-term Treasury bond ETFs fall as Goldman Sachs forecasts rate cuts in 2024<\/p>\nPowell may continue to sound \u201chawkish\u201d in reiterating that the Fed could again raise its benchmark rate in order to bring inflation down to its 2% target, said Wren.<\/p>\n
Chair Powell is scheduled to speak at the Jackson Hole meeting on Aug. 25.\u00a0<\/p>\n
\u201cThe U.S. economy is actually doing very well right now,\u201d said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a phone interview. \u201cI still think that inflation can absolutely come down without a recession.\u201d<\/p>\n
Many investors have long worried that the Fed risks triggering a recession by continuing to raise rates after rapidly hiking them last year to tame high inflation.\u00a0<\/p>\n
\u201cUnless the economy cracks in some way, certainly we don\u2019t get a rate cut this year,\u201d in Kelly\u2019s view.<\/p>\n
But Kelly anticipates the Fed might begin to slowly reduce rates in the spring of 2024 should inflation continue easing toward 2%. He said the central bank would probably accelerate the rate cuts if the labor market began \u201cflashing an orange light that we\u2019re about to head into a recession\u201d with back-to-back monthly losses in jobs in nonfarm payroll employment reports.\u00a0<\/p>\n
Read:<\/strong> BofA warns of \u2018unusual lack of concern\u2019 in stock market amid rising expectations for \u2018recession-free\u2019 rate cuts<\/p>\nMeanwhile, 10-year Treasury yields have risen for five straight weeks, their longest stretch of increases since March, to end Friday at 4.251%, according to Dow Jones Market Data. The rate retreated a bit Friday after on Aug. 17 finishing at the highest level since November 2007 based on 3 p.m. Eastern Time levels.<\/p>\n
BlackRock\u2019s Rieder chalked up the climb in part to an increased supply of U.S. government debt, the ripple effect of the Bank of Japan tweaking its yield-curve control to allow its own 10-year yields to rise, and Treasury bills
\n BX:TMUBMUSD06M
\n offering competitive rates of around 5.5% with no credit or duration risk.<\/p>\n
While the U.S. economy is doing well, China\u2019s is not, said Kelly. The country\u2019s property sector has been suffering while investors worry its slowing economy could wind up in recession.\u00a0<\/p>\n
A slowing Chinese economy could take pressure off demand for commodities, potentially having a deflationary effect that helps lower costs for companies, according to Citi\u2019s Chronert. But he also cautioned that an economic downturn in China could hurt earnings of U.S. manufacturers and retailers that are selling into the country.<\/p>\n
Meanwhile, \u201cthe earnings picture still seems to be pretty good for the second half of this year\u201d for U.S. companies, said Chronert.\u00a0<\/p>\n
Read:<\/strong> Citigroup raises S&P 500 target for 2023 on increased chances of \u2018soft landing\u2019<\/p>\nThat leaves investors closely watching Powell trying to balance the risk of cooling the U.S. economy too much in his bid to keep inflation under control with a restrictive policy rate. The Fed last month raised its benchmark rate to a target range of 5.25% to 5.5%, a 22-year high.\u00a0<\/p>\n
\u201cIf he starts waving a flag that it\u2019s got to go significantly higher from here to get where he needs to be on inflation, then that\u2019s an issue,\u201d said Chronert.\u00a0<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"The S&P 500 index is on course for its biggest monthly loss of 2023, jolted by rising Treasury yields as investors face the prospect of the Federal Reserve keeping interest rates higher for longer. In August the yield on the 10-year Treasury note broke out of the 3.5% \u2013 4% channel in which it had […]<\/p>\n","protected":false},"author":1,"featured_media":50790,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-50789","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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