By
Bhushan Akolkar
April 17th, 2024
The S&P and Nasdaq Composite reversed earlier gains to end Tuesday’s session in a loss, as the Fed readies key inflation report.
The S&P 500 slid 0.65% to close at 3,588.84, recording its fifth consecutive losing day ahead of a key inflation report. The leading index’s recent loss is a reflection of the broader state of affairs regarding several US stocks. For instance, on Tuesday, US stocks also reversed gains from earlier in the day ahead of the aforementioned upcoming inflation report.
In addition to the S&P’s slippage, which followed a rebound from a multiyear low in the session, the Nasdaq Composite fell 1.10% to 10,426.19. This represents the tech-heavy index’s lowest close since July 2020, with Tuesday’s loss also marking its five-day losing streak. On the other hand, the Dow Jones Industrial Average (DJIA) climbed 36.31 points, or 0.12%, to close at 29,239.19. Contributing factors to the major index’s jump were spikes in Amgen (NASDAQ: AMGN) and Walgreens Boots Alliance (NASDAQ: WBA).
The US economy continues to feel the brunt of soaring inflation and steep interest rate hikes. Over the last couple of months, investor jitters have defined the financial landscape, and the International Monetary Fund (IMF) recently added fuel to the fire. On Tuesday, the globally-renowned financial agency warned that the US economy might only manage a meager 1.6% growth this year. The IMF further stated that countries representing a third of world output could be in recession next year. As the financial institution’s chief economist, Pierre-Olivier Gourinchas, stated:
“The three largest economies, the United States, China and the euro area, will continue to stall. In short, the worst is yet to come, and for many people, 2023 will feel like a recession.”
Upcoming Fed Inflation Report Potentially Pivotal to S&P, Bonds
As the Federal Reserve prepares to release a key inflation report, the S&P and Nasdaq were not the only instruments to falter. Bond prices also hit a stumbling block during yesterday’s trading session. In addition, the yield on the US 10-year Treasury approached the key 4% level overnight. Yields remained high on Tuesday, with the 10-year yield up approximately 5.8 basis points at 3.943% after the session. This is likely because bond yields move inversely to prices, with one basis point being one-hundredth of one percent.
The price dynamics between stocks and bonds also took cues from the Bank of England’s announcement that intervention will soon end. In addition, the apex bank gave pension funds just three days to rebalance their positions. Explaining that the English central bank will wrap up its emergency bond market support program by Friday, Bank of England Governor Andrew Bailey, reportedly said:
“We think the rebalancing must be done and my message to the funds involved and all the firms involved managing those funds: you’ve got three days left now. You’ve got to get this done.”
Earlier on Tuesday, the Pensions and Lifetime Savings Association urged the Bank of England to extend the bond-buying program until at least the end of October. However, Bailey emphasized that the program was merely part of the central bank’s financial stability operations. According to him, since it was not a monetary policy tool, it had to be temporary.