By
Bhushan Akolkar
April 17th, 2024
The US 10-Year Treasury Yield has shot to an 11-year high at 3.48%. Any further surge in bond yields is likely to drag the market down.
After a brutal market correction on Monday, the S&P 500 (INDEXSP: .INX) slipped further into the bear market territory during Tuesday’s trading session. The investors’ confidence still remains fragile ahead of the Fed meeting on Wednesday, June 15.
Bear Market Trends
Along with the S&P 500, the Dow Jones Industrial Average (INDEXDJX: .DJI) slipped 151 points or 0.5%. However, the Nasdaq Composite (INDEXNASDAQ: .IXIC) ended in the green territory marginally.
Art Hogan, chief market strategist at National Securities told CNBC that the back-and-forth swings are quite common ahead of the major Fed announcement. Hogan added:
“This is one of the days where the market is going to have to take a wait-and-see attitude and certainly that’s what seems to be happening in the major indices. We’re really stuck in middle ground here”.
With the US inflation soaring to 8.6% and a four-decade high, analysts are anticipating more aggressive tightening policies from the Fed. On Tuesday, the 10-Year Treasury Yield topped at 3.48% hitting a new 11-year high. Jim Paulsen, chief investment strategist at The Leuthold Group said: “If the rates aren’t done going up then the stock market’s not done going down”.
The tech-heavy Nasdaq Composite is seeing some respite after correcting 30% so far in 2022. On Tuesday, top tech stocks including Microsoft, Tesla, and Nvidia witnessed a relief rally.
Fed Preparing for a 75 Basis Point Hike
With inflation going out of control and beyond expected, the Fed is likely to turn even more hawkish on its monetary policy. As per CME Group’s Fed Watch Tool, traders are expecting that there’s over a 90% chance for a 75-basis-point rate hike.
This is greater than a 50-basis-point hike that many traders were previously expecting. In a tweet on Tuesday, Pershing Square’s Bill Ackman wrote:
“The @federalreserve has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed. Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July, and a commitment to continued aggressive FF increases and QT until it is clear that inflation has been tamed.”
All eyes will be on the Fed meeting later today. Any aggressive measures of quantitative tightening are likely to put further pressure on the market.