Wall Street: There was a huge fall in the American stock market on Friday. Traders have reduced their expectations of an interest rate cut by the Federal Reserve after a rise in bond yields, continued strengthening of the dollar and a strong report on jobs. The 1.5 percent decline in the S&P 500 index on Friday wiped out all the gains it had made since the beginning of this year. The index witnessed its worst decline since December 18. The Fed had created a stir in the market on December 18 by signaling caution about continuing to cut rates.
There was selling in riskier pockets of Wall Street. Due to this, small caps fell by about 10 percent from their previous high. The decline in Treasuries pushed the 30-year yield briefly above 5 percent. Swaps are now priced at less than 30 basis points of Fed cuts this year.
In December, the U.S. economy added the most jobs since March and the unemployment rate unexpectedly fell, capping a strong year. Various figures are giving rise to inflation related pressures. Consumers’ long-term inflation fears have reached their highest level since 2008. The rise in oil prices has further increased this concern.
Neil Birrell of Premier Miton Investors says any hopes of a good start to this year have now been completely dashed. He added, “That’s good news for the strength of the economy and bad news for those expecting interest rate cuts, as inflation will now be at the top of the Fed’s agenda.” “Bond yields are going to continue to rise, which is bad news for equities. The question now is, can we actually see a 5% yield on the 10-year Treasury?”
On Friday, the S&P 500 index briefly broke its 100-day moving average. The Nasdaq 100 declined 1.6 percent. The Dow Jones Industrial Average saw a decline of 1.6 percent. The “Magnificent Seven,” a gauge of megacaps, dropped 1.2 percent. The Russell 2000 index of small firms declined 2.2 percent. Wall Street’s favorite volatility index – the VIX – reached near 20.
Daily Voice: Valuation of largecaps is good, no major policy announcement is likely in the budget – Anil Rego
The yield on 10-year Treasuries rose 7 basis points to 4.76 percent. The Bloomberg dollar spot index rose 0.5 percent. After Friday’s strong employment data, economists at some big banks changed their forecasts for additional Fed rate cuts. Bank of America, which had earlier expected two quarterly cuts this year, is now not expecting any cuts. It has even said that USFED’s next step could be to increase rates. Citigroup, which has been the most optimistic about rate cuts so far, still expects a five quarter point cut. But he also says that these cuts will start in May. Goldman Sachs Group is expecting two cuts versus three this year.