Dip Buyers Emerge After Wall Street’s CPI-Led Rout: Markets Wrap

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The rebound in Treasuries was led by shorter maturities and followed a selloff triggered by a reset in Federal Reserve rate-cut bets. With that adjustment, the premium traders are paying to hedge a sustained rise in long-end yields hit the most expensive level since October. Equities also gained in a choppy session.

“Investors should expect continued volatility as the market sorts out the continued uncertainty over how the Federal Reserve will respond to the ongoing inflation situation,” said Jeremy Straub at Coastal Wealth.

Fed Bank of Chicago President Austan Goolsbee said slightly higher inflation data for a few months would still be consistent with a path back to the central bank’s 2% goal. Traders are now only fully pricing in three Fed rate cuts for this year, with around a 70% chance of a fourth reduction. That lines up with the US central bank’s own forecast for three easing moves.

The S&P 500 hovered near 4,980. Nvidia Corp. briefly overtook Google’s parent Alphabet Inc.’s market capitalization, while Apple Inc. extended losses into a third day. Uber Technologies Inc. surged on plans to buy back shares. Bristol Myers Squibb Co.’s bond sale was said to exceed $85 billion in demand. Two-year US yields fell 10 basis points to 4.56%. Bitcoin topped $51,000.

Matt Maley at Miller Tabak Co. says the stock-market bounce is giving investors a lot of relief from Tuesday’s “scare.” However, he points out that Treasury yields remain at or very-near their recent highs.  

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“Therefore, if those yields do not roll over very quickly, it’s something that could finally create somewhat impactful headwinds for the stock market,” Maley noted.

A Bloomberg index of global debt has dropped 3.5% this year, wiping out all of its gains since Dec. 12, the day before the Fed announcement that month. Slower-than-forecast UK inflation numbers for January offered some relief to Treasuries on Wednesday, lowering the US 10-year yield after Tuesday’s 14-basis-point surge.

To Chris Senyek at Wolfe Research, the market remains a “show me” story. 

“For the overall market to experience an official correction, we believe investors will need to see additional evidence that the Fed won’t cut in-line with expectations and/or the growth outlook is decelerating fast enough to spark recession fears,” he noted.

“The ‘hot’ inflation data do not change our base case for a soft landing of slower growth, falling inflation, and 100bps of Fed rate cuts this year, likely starting in the second quarter,” said Solita Marcelli at UBS Global Wealth Management. “But we are continuing to monitor the incoming data and the start of rate cuts could be delayed should the economic prints remain strong.”

The reversal in bond yields Wednesday also favored a rebound in big tech, the group that has powered the stock-market resurgence.

A day after the Nasdaq 100 popped above 18,000 for the first time, investors are once again grappling with what the prospect of higher-for-longer interest rates means for tech valuations that are back at levels exceeded only during the pandemic-era rebound and the dot-com bubble.

Yet the Nasdaq’s 1.6% slide Tuesday was only the worst in two weeks, and a measure of implied volatility on the index remained firmly in calm territory. But the prospect of sticky inflation leaves bulls clinging to a Goldilocks scenario that sees the American economy continue to thrive — without generating pricing pressures that force the Fed back into rate hikes.

From a technical perspectivem, Dan Wantrobski at Janney Montgomery Scott says there will possibly be further “choppy back-and-forth action” this week as more Fed officials are expected to chime in on inflation data ahead of the producer price index on Friday.

He’s keeping a close eye on the 4,920 level for the S&P 500, which was the pivot point from Tuesday’s session. 

“A break below this threshold would trigger more selling pressures ahead,” he noted.

Corporate Highlights:

Key Events This Week:

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Edward Bolingbroke and Garfield Reynolds.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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Published: 15 Feb 2024, 03:30 AM IST