US Market Falls Before PCE Inflation Data.
Party Ended?
It finally happened.
On Wed, 29 May 2024, US stocks waded into the red zone, after a spike in Treasury yields.
This unsettled investors, who are already weighing whether recent data will shift the needle on interest rates higher.
By the time market called it a day:
$DJIA(.DJI)$ : -1.06% (-411.32 to 38,441.54).
$S&P 500(.SPX)$ : -0.74% (-39.09 to 5,266.95).
$NASDAQ(.IXIC)$ : -0.58% (-99.30 to 16,920.58).
Bond - the King Returns?
Stocks are sliding as investors contemplate a jump in US bond yields after a government debt auction flopped, reflecting worries that the Federal Reserve will keep rates higher for longer.
The Treasury's $69 billion sale of 2-year notes and $70 billion sale of 5-year paper, drew muted interest from both foreign and domestic investors.
This left Wall Street banks holding a larger-than-expected portion of the overall auction to cushion the blow.
The weak auction demand pushed market yields firmly higher into the close of the Tuesday session and again on Wednesday.
On Wednesday, the 2-year Treasury yield has added about 10 basis points in the past 5 days and is now pressing near the 5% level. (see above)
Similarly, the 10-year yield (^TNX) was trading around 4.62%, back above the key 4.5% level, its highest level since early May.
As seen in the chart above, that mark has been a key level for stocks as it coincided with the 3-month stock slide in 2023 and the most recent pullback in April.
Nvidia’s influence fading?
Concerns about inflation and prolong elevated interest rate are overshadowing the hopes for AI growth that lifted the Nasdaq to a record in the aftermath of $NVIDIA Corp(NVDA)$ post-earnings rally.
On Wednesday, Nvidia stock rose for a 4th straight day to close on yet another record high. (see above)
In Evercore, Snr MD - Julian Emanuel note to clients:
Recent market action brings an end to a yearlong trend of Nvidia's stock moves driving the market higher.
Nvidia is no longer 'The Stock That Is The Market' will likely end the market’s low volatility 'hush' of the past 2 weeks".
Why The Confidence?
On Tue, 28 May 2024 - the CB Consumer Confidence report for May 2024 was released.
At “102”, consumer is +6.25% more confident than analysts’ forecast of “96” and +4.62% higher than April’s data (97.5).
Investors are also trying to puzzle out what Tuesday's stronger-than-expected consumer confidence means to US Central Bank and its policymaking?
Both market and investors are mentally bracing for a long wait for interest cut, after a slew of warnings from Fed officials during their recent social outings.
US market will continue to be jittery going into Thursday.
It will only settle down once the Core PCE data is out on Fri, 31 May 2024.
Economists expect US’s April 2024 Core PCE, to clocked in at 2.8% YoY, same inflation rate as March’s data. (see above)
FOMC members have also started to monitor data points like (a) 3-month annualized percent change, and (b) 6-month annualized percent change to make assessments without distortion from base effects and evaluate progress towards the 2% target for core PCE.
It is very likely that Core PCE annualized 3 months % change will dip marginally because January data would be excluded in the calculation.
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