Stocks Slip as June Rate Pause

Optimism Fades: Markets Wrap

• Investors look for signs of progress in US debt-ceiling talks
• Higher-than-expected inflation outlook surprises Wall Street
By Peyton Forte
11 de mayo de 2023, 17:29 GMT-5Updated on12 de mayo de 2023, 15:21 GMT-5

Stocks and bonds floundered after Wall Street lost faith that a pause in the
Federal Reserve’s interest-rate hiking cycle was a given.

Swaps traders are now pricing in a one-in-10 chance there will be another
interest rate hike at the next Fed meeting in June, after odds had been tilted in
favor a pause earlier in the week.

The S&P 500 ended the week down 0.3% while the Nasdaq 100 eked out a 0.6%
advance. Early in the session gains were stamped out Friday after a preliminary
University of Michigan sentiment survey showed consumers expect prices to
rise at a 3.2% annual rate over the next five to 10 years, a 12-year high. Bank
stocks were weak with PacWest Bancorp dropping 3.0% and JPMorgan Chase &
Co. sliding 1.4%.

A renewed call to raise the debt limit from Treasury Secretary Janet Yellen
added to investor consternation Friday. “If Congress fails to do that, it really
impairs our credit rating,” she said in a Bloomberg Television interview. “We
have to default on some obligation, whether it’s Treasuries or payments to
Social Security recipients.”

The debt-ceiling standoff and hawkish comments from Fed officials kept stocks
in a tight range this week as investors await a signal the Fed’s rate hiking cycle is
at an end. US data Thursday showed initial jobless claims reached the highest
since October 2021 while producer prices rose less than economists expected,
raising hopes policy may finally be having an effect.

“This market has been flat because we’re in this world where we know the risk of
recession is high, but we’re not seeing the whites of the eyes of it in hard data,
and that’s why we continue to have this sideways chop,” Cameron Dawson, chief
investment officer at Newedge Wealth, said Friday on Bloomberg Television.

Wall Street has been eying 4,200 as a key resistance level for the S&P 500. The
risk is that the market moves higher, according to Dawson. “The technicals, the
sentiment positioning could get us above that and really make it a very big pain
trade,” he said.
Inflation is still too high, Chicago Fed President Austan Goolsbee said in PBS
interview. “You don’t want to land the plane nose down. So we’re trying to
balance off — can we slow the inflation without sending it into a recession.”

Goolsbee’s comments followed those of Fed Governor Michelle Bowman who

said the central bank will likely need to raise interest rates further if price
pressures don’t cool.

Yields on the policy-sensitive two-year climbed to 3.99% while the 10-year rose
to 3.46% Friday.

Solar stocks outperformed with First Solar Inc. leading a rally after new
guidance on a clean energy tax credit increase.

The dollar notched its biggest weekly gain since February as investors embraced
its safe haven status while Bitcoin dropped below $27,000.

In emerging markets, attention is turning to Turkey’s elections Sunday. Banking

stocks rallied in Istanbul, notching their best weekly performance since 2002,
when incumbent President Recep Tayyip Erdogan’s Ak Party rose to power.
Some investors expect the opposition to restore more orthodox monetary policy
should it gain power.