Such worries dragged Treasury yields lower in the bond market, and they fell again Friday. Yields sank as investors looked for safer places for their money and as expectations built for deeper cuts to rates coming from the Fed. The yield on the 10-year Treasury fell to 3.94 per cent from 3.99 per cent late Thursday.
After seemingly getting the Bank of Japan to stop hiking rates for now, Wall Street’s goal “now appears to be bossing the Fed into big rate cuts,” Bank of America strategist Michael Hartnett said in a BofA Global Research report.
Reports next week could drive more swings for the market. On Thursday will come an update on how much shoppers are spending at US retailers. Households at the lower end of the income spectrum have been struggling for a while to keep up with still-rising prices, but economists expect the report to show a return to growth after a stall in retail spending during June.
Another report on Thursday will show how many US workers are applying for unemployment benefits. The most recent such report raised hopes for the economy after the prior week’s frightened investors.
Looming over them all will be the latest updates on inflation. A worst-case scenario would be if Tuesday’s and Wednesday’s inflation reports show higher-than-expected rises in prices at the wholesale and consumer levels, while the week’s other reports show a sharp weakening of the economy.
The Federal Reserve wouldn’t have an easy way to fix such a toxic mess. The central bank could lower interest rates, which would give the US economy an upward push but also threaten to worsen inflation. Or it could continue to keep its main interest rate at a two-decade high. That would put downward pressure on inflation but also inflict more pain on the economy.
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To be sure, even though the US economy is slowing, it is not in a recession. And many economists still see one as unlikely.
A third factor that sent markets spinning recently is increased scepticism about Wall Street’s rush into artificial-intelligence technology, and how much profit growth it will really produce.
The frenzy around AI allowed a handful of Big Tech stocks to drive the S&P 500 to dozens of all-time highs this year, even as high rates weighed on other areas of the market. But the group of stocks known as the “Magnificent Seven” lost momentum last month amid criticism investors got carried away and took their prices too high.
Source Agencies
