Investors appear to be getting impatient waiting for rate cuts.
The U.S. Consumer Price Index (CPI) in April indicated that inflation may ease to a level that triggers the Federal Reserve to switch to interest rate cuts later this year. U.S. stock and bond markets rebounded strongly after the data was released.
According to Dow Jones market data, the S&P 500 index set a new intraday record of more than 5,300 points and achieved its 23rd closing high this year.
In fact, all three major U.S. stock indexes reached further record highs. The Nasdaq Composite hit a new closing high for the second consecutive day. The Dow Jones Industrial Average surpassed its previous closing record in late March.
Garrett Melson, strategist at Natixis Investment Management Solutions, said on Wednesday: I think FOMO (fear of missing out) will be a very big theme this year.
Internet celebrity stocks such as GameStop (GME) and AMC Entertainment Holdings (AMC) suddenly experienced violent fluctuations again. This may be an extreme manifestation of the return of FOMO in the market. But Melson believes that investors now seem to be less focused on whether inflation will continue for a long time. higher than the Fed\’s 2% target.
Although the housing component of April\’s CPI inflation measure, along with several other areas, looked stubbornly strong, Melson said the disinflationary trend that began last year appears to be continuing.
He pointed out that improving market sentiment since April, healthy stock market rotation, and still very strong consumer data should provide ample room for U.S. stocks to continue to rise at the broad index level throughout the summer.
According to Dow Jones Market Data, U.S. bond yields fell sharply on Wednesday as investors returned to fixed income markets. This boosted bond ETFs, including the popular iShares Core U.S. Aggregate bond ETF. The ETF rose 0.7%, recording its best one-day gain since 2024.
The benchmark 10-year U.S. Treasury note yield also fell back to 4.36% after hitting a year-to-date high of about 4.7% in April.
Danny Zaid, portfolio manager at TwentyFour Asset Management, described the 3.4% annual inflation rate in Wednesday\’s CPI report as a small step in the right direction.
\”This is certainly an improvement on the (inflation) situation in the previous three months,\” he said.
When talking about bond investment opportunities, Zaid said that U.S. corporate credit has rebounded sharply, surpassing similar products in Europe.
The main U.S. corporate investment-grade bond index recently had a spread of 90 basis points relative to the risk-free rate. The related indicator in Europe has a spread of about 20 basis points.
Zaid said: I think in some parts of U.S. corporate credit, investors are not compensated enough.
He added that at the margin, TwentyFour prefers European corporate credit. If the European Central Bank turns to cutting interest rates in June as expected, European corporate credit will benefit.
He said that although U.S. economic data is stronger than that of the euro zone, economic activity in Europe also seems to be bottoming out.
If we\’ve learned anything from this cycle, it\’s that things can change very, very quickly.
Are investors losing patience waiting for rate cuts? FOMO may be the big theme this year!
Investors appear to be getting impatient waiting for rate cuts
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May 16, 2024 4:58 pm