After two consecutive weekly gains for the S&P 500, markets reversed lower in a moderate fashion last week, with a luncheon featuring Federal Reserve Chair Jerome Powell in the spotlight.
For the week, the S&P 500 declined by 1.11%, the Nasdaq 100 fell by 2.14%, and the Dow Jones Industrial Average decreased by 0.17%.
Lunch with Jerome
Last Tuesday featured hungry world leaders chowing down around noon at the Economic Club of Washington, D.C. On the docket? Fed Chair Jerome Powell.
With global financial leaders in attendance, plenty of eyes were on the event live stream, with traders analyzing each word.
To summarize, Powell mentioned that inflation is beginning to ease but that it will be a long process and that interest rates will rise further, especially if economic data releases warrant it.
Chair Powell Luncheon Quotes
“The disinflationary process, the process of getting inflation down, has begun, and it’s begun in the goods sector, which is about a quarter of our economy,” the central bank chief said. “But it has a long way to go. These are the very early stages.”
“The reality is we’re going to react to the data,” Powell said. “So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.”
Bond Yield Inversion
Holy inversion. The inverted yield between 2-year and 10-year notes reached a negative spread of 76 basis points to close out last week after reaching 86 basis points last Thursday. These levels have not been seen since the early 1980s.
Ten-year note yields rose sharply last week, closing the week at 3.745%, up from their previous weekly close of 3.531%. This sharp rise shows conviction in the expectations for potentially more Fed rate hikes for longer.
Current Fed Meeting Probabilities
As of Monday morning, bond markets currently factor in a 90.8% probability of a 25-basis-point hike at the March 22nd Fed meeting and a 73.6% chance of another 25-basis-point hike at the May 3rd meeting, per the CME FedWatch tool.
U.S. Dollar Eyed
The U.S. Dollar Index rose along with bond yields last week. This marked the second consecutive week of U.S. Dollar Index gains.
Many traders and analysts will be monitoring the U.S. dollar for further strength, given the recent pullback and the release this week of Consumer Price Index (CPI) data.
Last Friday featured the most recent preliminary consumer sentiment reading, showing a better-than-expected result of 66.4, above estimates of 65.0.
Slightly improved consumer sentiment is always good. But it’s important to keep in mind that consumer debt is currently at an all-time high of $4.78 trillion, according to data from the Federal Reserve.
As I’m sure you well know, stuff still costs a lot!
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