Keeping Market Uncertainty in Perspective
By John Persinos
In the U.S., stocks hover at record highs, inflation is falling, the economy is growing, and unemployment has dropped to a 50-year low. Or as the media's chattering class puts it: "America is doomed!"
Below, I put current market dynamics into calm perspective. The upshot: The bull market is alive and well, albeit with a few caveats.
Admittedly, in a bearish trend, Treasury bond yields have been rising, with the 10-year yield inching up to 4.31% and the 2-year yield posting a marginal increase to 4.70%. This recent uptick in yields, particularly in the shorter maturities, signals shifting market expectations over the timing and extent of potential Federal Reserve interest rate adjustments.
In recent weeks, the rapid ascent of Treasury yields has stoked concern on Wall Street, particularly with the 2-year yield climbing about 0.55% from recent lows. This surge in yields coincides with the increasing probability of the Fed deferring a rate cut to the middle of the year.
Despite this increase in yields, equities have managed to maintain their upward trajectory, with the S&P 500 boasting a roughly 6% increase year-to-date. This resilience stems from healthy corporate earnings growth and steadfast consumer consumption patterns, underscoring the underlying strength of the economy despite monetary policy uncertainty.
Inflation has been restive lately, but the long-term prognosis points downward. Investors nervously await the latest personal consumption expenditures (PCE) inflation report, slated for release Thursday. The PCE, regarded as the Fed's preferred inflation gauge, holds significant sway over market sentiments and monetary policy decisions.
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