S&P 500 rally in trouble as Treasury yields soar: Market over

(Bloomberg) — The rally that drove stocks to record highs has lost steam, U.S. Treasury yields surged and the dollar hit a two-year high ahead of key inflation data.

Stocks edged lower after the S&P 500 notched its biggest five-day gain in a year. Small-cap stocks and banks fell after a sharp post-election rally. Tesla Inc. fell after surging nearly 45%. Bitcoin took a big hit. The dollar hit its highest level since November 2022. U.S. Treasury yields climbed on expectations that data will show a bumpy road to easing price pressures in the final stages of achieving the Fed’s goals.

Minneapolis Fed President Neel Kashkari said he will watch upcoming inflation data to determine whether another rate cut is appropriate in December. If a rate cut in December “starts to look imprudent,” a hot consumer price index and/or strong retail spending could push yields higher, said FHN Financial’s Will Compernolle.

Citigroup strategists led by Chris Montagu said the post-election rally in U.S. stocks could stall as investors begin to take profits. Investors’ exposure to U.S. stocks jumped to the highest level since the 2013 presidential election on optimism about strong economic growth, a Bank of America Corp. survey showed.

“We are watching for potential profit-taking, consolidation and even a correction in U.S. stocks heading into the first quarter of the new year,” said Dan Wantrobski of Janney Montgomery Scott. “Momentum remains strong and investor sentiment is favorable. , but stocks are overbought/extended again on multiple time frames.”

The S&P 500 fell 0.3%. The Nasdaq 100 fell 0.2%. The Dow Jones Industrial Average fell 0.9%. The Russell 2000 index fell 1.8%.

The 10-year Treasury yield rose 12 basis points to 4.43%. The Bloomberg Dollar Spot Index rose 0.4%.

Wednesday’s core consumer price index, which excludes food and energy, is likely to show the same monthly and annual gains compared with September’s data. Headline CPI is likely to have risen 0.2% for a fourth consecutive month, while the year-on-year measure is expected to accelerate for the first time since March.

A survey conducted by 22V Research showed that 55% of investors expected the market response to CPI to be “mixed/negligible”, 31% said they were “risk averse” and only 14% said they were “risky” Preference”.

Meanwhile, 48% of investors surveyed by 22V believe core CPI is on a downward path that favors the Fed, without a sharp tightening in financial conditions or a recession. However, 44% believe financial conditions need to tighten. This is the highest value since April.

Apollo Global Management’s Scott Kleiman warned markets against being too optimistic about the current trajectory of inflation and interest rates.

“Inflation has not been contained,” Kleiman said in an interview on Bloomberg Television on Tuesday. “The Fed can say whatever it wants. You just have to open your eyes and look around.”

Swaps are priced at about 14 basis points of easing, or about 55% of a 25 basis point rate cut on December 18, down from what was almost a certainty earlier this month.

Some major trends in the market:

This story was produced with the assistance of Bloomberg Automation.

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