As investors digest the recent commentary from Fed Chair Jerome Powell, stock indexes have taken a step back. The odds of a 25-basis-point rate cut in December have seen a significant decline following Powell’s address. Additionally, bond yields have climbed in response to signs of economic strength, further impacting market sentiment.
In response to Powell’s remarks, US equities saw a decline on Friday morning as Wall Street recalibrated its rate-cut expectations for December. The scaling-back began after Powell highlighted the ongoing strength of the US economy, indicating a more cautious approach to policy easing.
Powell stated, “The economy is not sending any signals that we need to be in a hurry to lower rates.” This sentiment was reflected in the market, with the probability of a 25-basis-point rate cut falling to less than 60%, down from 80%, according to the CME FedWatch Tool. This probability remained lower, around 58%, on Friday morning.
Encouraging economic data also played a role in shaping rate-cut expectations, with new figures showing US retail sales advancing in October, driven by increased auto purchases. While the three major indexes are heading towards their first losing week since the election, bond yields have been on the rise. The 2-year yield, which is most sensitive to near-term rate forecasts, has seen a 7 basis points increase in the last two days.
In commodities, bonds, and crypto markets, oil prices saw a decline, with West Texas Intermediate crude sliding to $68.04 a barrel and Brent crude falling to $71.88 a barrel. Gold prices remained relatively stable at $2,572 an ounce, while the 10-year Treasury yield climbed by 4 basis points to 4.459%. Bitcoin also experienced an increase, jumping by 2.28% to $90,053.
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