'Fed-Friendly' Data Lift Bonds As Stocks Struggle: Markets Wrap

(Bloomberg) — Treasuries rose after data underlined a gradual economic slowdown, fueling speculation that the Federal Reserve would end its most aggressive foothold campaign in decades.

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Two-year yields fell to their lowest level since August, falling nine basis points to about 4.8%. After a sharp rally that sent the S&P 500 near “overbought” levels, the index struggled. As earnings season approaches, traders’ attention is focused on big-box retailers. Walmart Inc declined amid a cautious outlook on the outlook for consumers, while Macy’s Inc gained. Cisco Systems Inc. down after recession forecast. drowned. Oil continued to fall amid rising reserves.

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Applications for U.S. unemployment benefits have reached the highest level in nearly two years, reflecting the growing challenges unemployed workers are facing in finding new jobs. Factory output declined more than expected, primarily reflecting a strike-related decline in activity at automakers and parts suppliers. Homebuilders’ sentiment fell to the lowest level this year.

“The delay in monetary policy is now impacting the economy – from input costs to industrial production to labor,” said Jamie Cox, managing partner at Harris Financial Group. “Now, the fight has shifted from inflation to maintaining economic growth and averting recession. A rate cut is closer than people think – perhaps even as early as March 2024.

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While it is still too early for the Fed to declare victory on inflation – and a rate cut is still a ways off – according to Chris Larkin at Morgan Stanley’s E*Trade, figures like the recent data should ease concerns about additional hikes. Will give.

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“The question now is whether this type of ‘Fed-friendly data’ will continue to provide a boost to the stock market,” he said.

Chris Gaffney, Everbank’s president of world markets, said the market is still subject to some volatility going forward and is certainly data dependent.

“There is a trade-off going on between the markets and the Fed and that will create more volatility as we move forward through the end of the year and really into next year,” he said.

Fed Bank of Cleveland President Loretta Mester said inflation has eased, but it will take time to fully return to the central bank’s 2% target. Mester, who does not vote on policy decisions this year, said there are many uncertainties in the economic outlook.

Meanwhile, former Treasury Secretary Lawrence Summers said “temporary factors” have been an element in the slowdown in US inflation faster than he expected.

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The poor economic outlook and attractive returns on cash kept investors away from stocks despite their poor performance this year. Goldman Sachs Group Inc. thinks the warnings will last through 2024.

“We expect positive returns in equities, but a risk-free 5% return in cash remains a competitive option,” said David Kostin, the bank’s chief U.S. equity strategist. “In the current interest rate environment, a 3-month Treasury bill yields 5.5%, which is similar to the yield earned on the S&P 500 index.”

Barclays PLC strategists said global stocks will outperform bonds in 2024 as they embark on a “soft-ish” economic landing, becoming the latest in an optimistic tone on the asset class.

The Ajay Rajadhyaksha-led team focused more on global equities than core fixed income and said they expect “mid to high single-digit returns” in both the US and Europe next year. That forecast holds even though bond yields remain high and earnings expectations for the S&P 500 “appear to us too optimistic,” he wrote.

Corporate Highlights:

Cybersecurity firm Palo Alto Networks Inc. It missed Wall Street estimates for billings in the first quarter of its fiscal year and lowered its forecast for the full year.
Glencore PLC is preparing to launch a new coal supermajor in the New York market, which – based on recent performance – will generate higher profits than the current top 10 U.S. listed coal miners.
Blackstone Inc. has raised $8 billion from institutional investors in the first round of a fresh direct debt fundraise, people familiar with the matter said.
Thousands of Starbucks Corp. baristas plan to strike Thursday, claiming the coffee chain refuses to negotiate fairly with their union.
Airbus SE found itself in unfamiliar territory at this year’s Dubai Air Show, receiving only a few dozen orders, while Boeing Co. scored its largest in a decade.
Alibaba Group Holding Ltd. has shuttered its massive cloud business after the U.S. imposed tough restrictions on advanced chips destined for China, surprising investors and casting doubt on a historic overhaul it announced a few months ago.
Ant Group Co’s quarterly profit fell 65%, hit by a one-time fine, signaling the end of China’s years-long crackdown on the tech industry.

Major events of this week:

American housing starts, Friday
US Congress faces Friday midnight deadline to pass federal spending measure
ECB President Christine Lagarde speaks, Friday
Chicago Fed President Austin Goolsbee, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly speak Friday

Some key movements in the markets: