Rate cuts are on the horizon.
Rates cuts are coming in spring 2024.
Rate cuts are coming this year.
As you may have guessed, forecasting their exact timing is as elusive as ever, and given yesterday’s robust U.S. economic report, the Fed may not rush to reduce borrowing costs. This uncertainty has prompted investors to adopt a defensive stance.
Wall Street experienced another decline after the U.S. economy showed unexpected strength, diminishing hopes for imminent interest rate cuts. On Wednesday, the S&P 500 dropped by 0.6% for the second consecutive day. The Dow fell by 0.3%, and the Nasdaq composite lost 0.6%.
Rising bond yields once again exerted downward pressure on stocks. Higher yields adversely affect various investments, and high-growth stocks tend to be some of the hardest hit. Drops of about 1% or more for Tesla, Apple, and Amazon shares were among the major contributors to the S&P 500's decline.
Bond yields increased following a report indicating stronger-than-expected sales at U.S. retailers last month. Retail sales rose by 0.6% from November and increased by 0.4% month-over-month, excluding autos. The resilience in consumer spending could maintain upward pressure on inflation. Consumer Price Index data revealed a higher-than-anticipated acceleration in inflation for December, with a 3.4% year-over-year increase.
Despite the dovish shift in the Federal Reserve's stance in December, officials are now attempting to temper expectations of early rate cuts. The latest data cast doubts on the likelihood of aggressive rate cuts from the Fed. Investors are currently factoring in a nearly 100% chance that the Fed will maintain unchanged rates at its upcoming policy meeting, up from a 90% chance a month ago.
Wednesday's downturn on Wall Street followed a challenging day for global financial markets. European stock indexes fell by over 1% in response to comments by Christine Lagarde, the head of the European Central Bank.
The decline was even steeper in Asia, with Hong Kong's stocks sinking by 3.7% and Shanghai experiencing a 2.1% drop, reflecting ongoing concerns about the slow recovery of the world's second-largest economy.
