Eventually the good news from the US economy to date turns into bad news for the stock markets. Yesterday a substantial sell-off was staged on Wall Street (-1.93% the Nasdaq and -1.79% the S&P 500) in the wake of the feedback from the US economy, in particular the ISM services in November, better than the expectations, which has fueled expectations of a more hawkish Fed, even if for now the forecasts on the outcome of the next meeting on 13-14 Decemberremain by a 50 basis point rate hike, following four consecutive 75 basis point tightenings.
“It starts again from an awareness: the American economy is still “too” healthy. While it is counterintuitive for the market to fall on good news or rise on bad news, the process is typical of a market as a mechanism for discounting expectations,” he argues. Gabriel Debach, market analyst at eToro.
In addition to the decline on the equity front, US government bond prices fell yesterday, with the two-year Treasury yield climbing 0.12 percentage point to 4.40%. The yield on the 10-year benchmark note added 0.1 percentage point to 3.6%.
Paul Donovanchief economist at UBS Wealth Management, notes that the bad news for markets is that Federal Reserve Chairman Jerome Powell’s policy mistakes in June are still causing damage.
“Powell tore up forward guidance, leaving markets uncertain about policy direction. The recent weakness was a reaction to a survey of services sector sentiment. That something so flimsy could move markets signals the unnecessary volatility created by policy mistakes.