-Wall Street received a reality check, as data revealed a hot labor market, which will likely keep the Federal Reserve on its aggressive hiking trail. Stocks fell as a result of those bets, propelling benchmark treasury yields to their longest weekly gain since 1984.
Almost 95% of the companies in the S&P 500 declined. The drop came just a few days after the index posted its biggest back-to-back gains since the pandemic began, amid speculation that the Fed was approaching "peak hawkishness." Despite Friday's drop, those gains gave the index its best week in a month. The tech-heavy NASDAQ 100 dropped nearly 4% on Friday.
10 Yr yields approached 3.9% as they rose for the 10th week in a row. the dollar advanced. The swap contract for the Fed meeting in November factored in nearly 75 basis points of tightening. Market-implied expectations for where the rate will peak also increased, with the derivative contract for the March gathering trading around 4.66%. the current range for the benchmark rate stands between 3% and 3.25%.
Fed Bank of New York President John Williams stated that rates need to gradually rise to around 4.5%, but the pace and ultimate peak of the tightening campaign will be determined by how the economy performs. Several officials delivered a resolutely hawkish message this week, saying that price pressures remain elevated and that financial market volatility will not deter them from raising rates.
After a hotter-than-expected reading in August dampened hopes of a nascent slowdown, all eyes will be on next week's US inflation data. Separately, the Fed's September meeting minutes could reveal the central bank's tolerance for economic pain.
Investors poured the most money into cash since April 2020, fearing a looming recession, but stocks could fall further because they don't fully reflect that risk, according to Bank of America strategists. According to their report, cash funds received nearly $89 billion in the week ending October 5th, while investors withdrew $3.3 billion from global stock funds.