Not for the first time, the Fed is in a very difficult spot. Whilst always a dominant force in global markets, for now, Powell’s team is not in the front seat. We learned this week the direction of U.S. monetary policy (over the coming months) depends heavily on developments well beyond the Fed’s control. And unfortunately for investors – it could be a long (US) summer. In its latest decision, the Fed held rates steady, as expected, citing strong economic activity, low unemployment, and persistent—but slightly elevated—inflation.
Interest Rates / Bonds
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Borrowing Costs Are Going Up
Can the stock market significantly advance with bond yields going higher? That’s what investors are trying to gauge. As governments around the world look increase their (already high) levels of borrowing and spending — it’s plausible bond yields are set to rise further. And it’s not hard to explain why… demand is falling as supply increases. But at what point does the stock market say enough?
Bond Vigilantes To Have the Final Vote
Markets paused to take a breath this week following a six-week ~22% surge. The S&P 500 surrendered a routine ~2.80% – after touching a 12-week high of 5,968. With the market trading at 22x fwd earnings (a premium in any environment) – investors are arguably more mindful of (a) ongoing tariff risks- with new threats from Trump on Europe and Apple; and (b) the thread of rising bond yields – and any potentially widening of the deficit.