And after the shock utmost caution. Wall Street groping in the aftermath of the strong sales that drowned it following the publication of the US inflation data, which rose in January to a new record of the last 40 years. The Dow Jones is up 0.11% to 35.279 points, the S&P is up 0.08% to 4.509, while the Nasdaq is + 0.02% at 14.187.
US equities reported an improvement, however, if we consider that, just before the start of the European stock market session, Nasdaq futures had capitulated by more than 1%.
So he commented in a note to customers reported by Cnbc Savita Subramanian, head of US equities and the division of Quantitative Strategy of Bank of America, looking in particular at the trend of the S&P 500:
“The S&P 500 is still trading at 20 times the forward P / E ratio, at its lowest since Covid, but well above the 14 to 18 times pre-Fed rate hike range. of the 2015-2019 period and is also 28% higher than the historical average of 15.6 times. We are not fully bearish, given the still solid fundamentals, but we expect the market to remain volatile throughout the year , given that so far there are no signs of a slowdown in inflation “.
In January, inflation as measured by the consumer price index soared in the United States by 7.5%, more than expected, which was for a 7.3% increase. On a monthly basis, the US consumer price index rose at the rate of 0.6%, as in December, but more than the estimated + 0.5%.
Core inflation also picked up pace, with a rise of 6%, after the previous + 5.5% and over the + 5.9% expected by the consensus. On a monthly basis, the trend of the core component was an increase of 0.6%, as in December, but above the expected + 0.5%.
The reaction of the US stock market was immediate, discounting the prospects of an even more hawkish Fed and, consequently, the jump in Treasury rates, with the ten-year rates that yesterday exceeded the 2% threshold for the first time since 2019, rising up to 2.05%. Today rates are falling back, still hovering above 2% for now.
Attention, among other things, to the two-year Treasury rates, more sensitive to Fed decisions, which jumped 26 basis points yesterday, exceeding the 1.6% threshold and reporting the strongest daily increase since 2009.
Perhaps the reaction would not have been so strong if the data had not been added to the statements by James Bullard, chairman of the St. Louis Federal Reserve, who said he had become more hawkish “drastically”, adding that he wished at this point. a rate hike of 100 basis points by 1 July next.
“I would like to see a rise of 100 basis points in the pipeline by 1 July,” said Bullard, interviewed by Bloomberg News after the publication of the US inflation data.
Yesterday the Dow Jones Industrial Average sank 526.47 points, to 35,241.59 points, while the S&P 500 fell 1.81% to 4,504.08. The Nasdaq Composite slipped 2.1% to 14,185.64.
That said, at least until the close of trading yesterday’s session, the weekly trend on Wall Street remained positive, with the Dow Jones up 0.4% weekly, the Nasdaq up 0.6%. , the S&P 500 was up by just 0.1% instead.
At this point, a rather sustained cycle of Fed funds rate hikes by the Fed by Jerome Powell seems almost obligatory.
The US labor market, on the other hand, is solid, as confirmed yesterday by the data relating to the initial requests for unemployment benefits, which fell for the third consecutive week.
Economists and markets are now pricing a more aggressive Fed, with economists at Goldman Sachs, as well as those at Bank of America, forecasting seven rate hikes this year.
However, the CME data shows that fed funds futures are now betting on a 50 basis point monetary tightening at the next FOMC meeting in March with a 66% probability, down from 89% just a few hours ago.