The renewed surge in Treasury yields was the catalyst for a slide in equities, with geopolitical tensions and dire forecasts from bellwethers WMT and HD further souring the mood.
There are growing fears that the Fed is nowhere near wrapping up its war against inflation—let alone pivoting—continued to hurt bond investors who as recently as 10 days ago were believing a rate cut will occur this year.
As noted many times, this is the inverse as to what the Fed was adamantly projecting and Wall Street is now beginning to accept the Federal Reserve’s version of tomorrow’s reality.
According to Bloomberg, the swaps market is now projecting a 5.3% Fed Funds peak occurring in June/July and will maintain this rate until mid-2024. As noted above, as recently as 10 days, swaps were projecting a peak rate of 4.5% to 4.75% and a rate reduction sometime in June/July.
Because of inflation, yields have reached new highs for 2023 and yesterday’s equity selloff engulfed every major group in the S & P 500, wiping out February’s advance and headed toward its worst slump since mid-December. The Dow is now negative for the year as is the Treasury market. The NASDAQ is also negative for the month.
As widely noted three weeks ago, the Treasury market had its best start to a new year in over 35 years. The velocity of change is incredible.
Most will agree many equities have not discounted higher interest rates for such depresses current value of future expected cashflows. Many valuations are just beginning to discount the new reality of higher interest rates, rates that will be held at these levels longer than previously believed.
What will happen today? Will the Minutes from the recent FOMC meeting be of any relevancy?
Last night the foreign markets were down. London was down 1.06%, Paris down 0.81%, Frankfurt down 0.63%. China was down 0.47%, Japan down 1.34% and Hang Seng down 0.51%. Futures are down about 0.2% on monetary policy and geopolitical angst. The 10-year is up 6/32to yield 3.93%.
