This upcoming week has several flashpoints that could further swing expectations. On Wednesday will come the latest monthly update on the inflation that US consumers are feeling. Later in the week will be reports on inflation at the wholesale level and expectations for upcoming inflation among US households.
Fed Chair Jerome Powell said recently he still expects cuts to interest rates this year, but the central bank needs additional confirmation inflation is heading toward its target of 2 per cent. The Fed has been holding its main interest rate at the highest level since 2001, hoping to grind down enough on the economy and prices for investments to get inflation under control. The risk of holding rates too high for too long is that it could cause a recession.
Some Fed officials have raised the possibility of rates staying high for longer if inflation remains stubborn. That has pushed many traders on Wall Street to cut back expectations for how many cuts to rates there might be this year to two from three. They had already drastically pulled back their forecasts from the start of this year, when many were expecting six cuts or more.
Traders now see roughly a coin flip’s chance of the Fed cutting interest rates at its meeting in June, down from a better than 70 per cent probability a month ago, according to data from CME Group.
Friday’s surprisingly strong jobs report showed that workers’ average hourly wages were behaving as expected, even though employers hired far more workers than expected last month.
But critics say stock prices already look expensive given their huge run of more than 20 per cent from November into March. That means “achieving ambitious earnings forecasts has become paramount,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.
Loading
“Economic growth is good, but complacency around its implications is not,” she said.
On the losing end of Wall Street was Trump Media & Technology Group. The company behind the Truth Social platform has seen its stock price swing sharply by the day, as experts say it’s moving more on the hopes of Trump fans than on the profit prospects of the company. It sank 8.4 per cent.
In the bond market, Treasury yields rose to add to their gains for the year so far on diminished expectations for cuts to rates. The yield on the 10-year Treasury ticked up to 4.42 per cent from 4.40 per cent late Friday and from less than 3.90 per cent at the start of the year.
In stock markets abroad, indexes mostly rose across Europe and Asia, though stocks fell 0.7 per cent in Shanghai.
With AP
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.