Stock bulls took a step back to start the week as bond yields move sharply higher. Bond yields really began gaining strength last Friday following the much stronger than expected January jobs report that increased doubts about the timing of Federal Reserve rate cuts.
Those doubts were reinforced yesterday by the ISM Non-Manufacturing Index that showed the US service sector expanded at the fastest pace in four months, while costs jumped to the highest level since February 2023.
According to ISM economists, the surge in prices is being driven by higher shipping costs due to unrest in the Red Sea and the issues at the Panama Canal. The report showed +35% of industries reported paying higher prices for materials, the largest share in a year. Notably, the ISM Manufacturing report last week also showed a spike in costs related to shipping headwinds.
Want your money to grow?
See how I can help you to make your money work for you
Managed Investment Accounts – unlock the power of professional asset management. Let me make you money while you enjoy your life.
That obviously raises red flags about inflation returning as those costs could eventually be passed on to consumers, depending on how long shipping rates remain elevated. Many on Wall Street are now more seriously walking back their outlooks for Fed rate cuts.
According to the CME FedWatch Tool, traders place the odds of a 25 basis point rate cut in March at around just 15% now, versus almost 50% last week and 64% a month ago.
Traders have also lowered the number of rate cuts expected in 2024, with most now expecting four or five 25 basis point cuts versus as many as six previously.
The “higher for longer” Fed rate outlook also means investors are likely recalibrating their outlooks for stock prices, as much of the market’s bullish momentum has been based on hopes for much looser financial conditions in the quarters ahead.
Earnings this week may not provide much of a boost to sentiment with big tech results now mostly in the rearview. It’s not that results beyond the big tech companies are insignificant, they just don’t tend generate the same “sexy” headlines that get the bulls fired up. Earnings highlights today include Amgen, BP, Carrier Global, Chipotle, Edwards Lifesciences, Fiserv, Ford, Gilead Sciences, Eli Lilly, Nintendo, Snap, Spotify, and Toyota.
Another Winning Week For Stock Market
Wishing you a great week!
Want to make your trading more profitable?
Subscribe to get free research, trading lessons, and more insights.
(We do not share your data with anybody, and only use it for its intended purpose)
