S&P 500 loses steam amid stagflation talk: market closed

(Bloomberg) — The stock market lost steam and bond yields rose after data pointed to an economy that is slowing amid persistent inflation pressures, posing a challenge to prospects for rate cuts from the Federal Reserve.

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Stocks wobbled, following a report that showed U.S. consumer sentiment fell to a six-month low as near-term inflation expectations rose. While the slowdown in key areas of the economy has encouraged bets on monetary policy easing, a chorus of Fed officials continues to echo the bigger-for-longer mantra as they try to bring inflation back to the target of 2 % of the central bank.

“The Fed is walking a tightrope in balancing price stability and growth mandates,” said Jeff Roach of LPL Financial. “While this is not our base case, we see increasing risks of ‘stagflation’ – a concern that markets will have to deal with.”

The S&P 500 hovered near 5,215, still heading for its third consecutive week of gains – the longest winning streak since February. The Dow Jones Industrial Average rose for the eighth consecutive session. Most megacaps fell, although Nvidia Corp. stopped a three-day decline.

10-year Treasury yields rose five basis points to 4.50%. The dollar fluctuated.

While inflation data has overshadowed most other reports this year, it’s important to remember that consumer spending is the main pillar that has supported the economy, according to Chris Zaccarelli of the Independent Advisor Alliance.

“Current lower-than-expected consumer sentiment numbers are a warning sign that the consumer should not be taken for granted,” he noted. “Additionally, inflation expectations have also been rising, which is a double whammy for the Fed.”

Zaccarelli also noted that if spending slows and inflation rises, “we will have the opposite of the Goldilocks scenario that many expected, and the Fed will be in an especially difficult position to choose between accommodating a slowing economy and combating rising inflation.” expectations.”

Dallas Fed Bank President Lorie Logan said it’s still too early to think about reducing borrowing costs, given disappointing inflation data in the first few months of the year. Gov. Michelle Bowman said she does not expect it to be appropriate for the Fed to cut interest rates in 2024, pointing to persistent inflation in the first few months of the year.

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Chairman Jerome Powell, speaking after the central bank’s April 30-May 1 meeting, said policymakers would likely keep rates high for some time, adding that he wasn’t sure how long it would take for him and his colleagues to win. confidence to reduce rates. .

A litany of weaker-than-estimated data — from jobs to services and manufacturing — sent the U.S. version of Citigroup’s Economic Surprise Index to its lowest level since January 2023. The gauge measures the difference between actual releases and those. analysts’ expectations.

“Economic growth slowed sharply in the first quarter and will likely be slow for the rest of 2024 as well,” said Bill Adams of Comerica Bank. “Financial markets still expect the Fed to begin cutting rates by the end of the year, with two quarter percentage point cuts more likely than one.”

Among the various aspects of Friday’s consumer sentiment report, Peter Boockvar also cited the fact that the situation of higher interest rates for a longer period of time has led to a decline in purchasing conditions for large-value items, as stated .

“I said a few years ago when the Fed was aggressively raising interest rates that I was more concerned about a death-by-a-thousand-cuts economic response rather than an immediate major economic event/decline, and I’m going to stick with that ,” said the author of the Boock Report. “This certainly looks a lot more like a 1.5% type of economy rather than the 3% some think we’re still at.”

Corporate Highlights:

• Target Corp. will not sell LGBTQ-themed merchandise in some stores during Pride Month in June after a backlash hurt revenue last year.

• signed a US$1.2 billion licensing agreement with Sanofi that includes the commercialization of a combined vaccine against Covid-19 and flu.

• U.S. regulators’ decision on whether to approve Moderna Inc.’s RSV vaccine has been delayed due to “administrative constraints” at the Food and Drug Administration as the company works to bring its second product to market.

• 3M Co. was raised to buy at HSBC, which noted that the company’s earnings showed nascent signs of an “inflection in growth and margin gains from restructuring” at the industrial giant.

• saw April sales jump 60% as sustained demand for artificial intelligence was helped by the start of a recovery in consumer electronics.

• Shares of Sweetgreen Inc. rose after the salad chain raised its annual sales forecast and showed improved profitability as it seeks to expand its footprint.

Some of the main movements in the markets:

Actions

• The S&P 500 was little changed as of 12:03 p.m. New York time

• The Nasdaq 100 has changed little

• The Dow Jones Industrial Average rose 0.1%

• The Stoxx Europe 600 rose 0.8%

• The MSCI World index rose 0.2%

Coins

• The Bloomberg Dollar Spot index was little changed

• The euro was little changed at $1.0773

• The British pound was little changed at $1.2527

• The Japanese yen fell 0.2% to 155.84 per dollar

Cryptocurrencies

• Bitcoin fell 3% to $60,773.92

• Ether fell 3.7% to $2,908.69

Titles

• The yield on the 10-year Treasury note rose five basis points to 4.50%

• Germany’s 10-year yield rose two basis points to 2.52%

• Britain’s 10-year yield rose two basis points to 4.17%

goods

• West Texas Intermediate crude fell 0.7% to $78.69 a barrel

• Spot gold rose 0.7% to $2,363.82 an ounce

This story was produced with help from Bloomberg Automation.

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