After six consecutive days of gains, U.S. stocks exhibited a mostly downward trend following the opening bell on Tuesday, as traders adopted a more cautious approach.
Here's what's happening:
What's influencing market trends:The recent surge in the stock market appeared to be slowing down on Tuesday.
Traders were becoming more cautious after a decline in bond yields last week, which was driven by hopes that the Federal Reserve had concluded its interest rate hikes. This optimism had led to a 6% rise in the S&P 500 over just six sessions.
Thierry Wizman, the global FX and interest-rates strategist at Macquarie, explained, "Risk aversion is making a small comeback this morning following the rallies in stocks and FX seen through yesterday. Most of this, we believe, is a bit of reality setting in — yes, yields fell and supported multiples last week, but global growth (and earnings) are set to see slower growth in Q4 as U.S. consumers begin to brake their own spending, and disinflation continues."
The primary driver of U.S. stocks in recent times has been implied borrowing costs. The 10-year Treasury yield, which reached a 16-year high above 5% last month but briefly dropped below 4.5% on Friday due to cooling jobs data, is now trading at around 4.61%.
The market is currently factoring in the possibility of four rate cuts next year, with the first one being moved up to the May/June timeframe, according to Kent Engelke, chief economic strategist at Capitol Securities Management. He also noted that several Fed officials, including Chair Powell, are scheduled to speak in the coming days, and they may "push back" against the emerging narrative that the Fed is finished, with the first rate cut expected in June.
Minneapolis Fed President Neel Kashkari's remarks on Monday echoed this sentiment, stating that Fed officials haven't discussed the conditions that would warrant interest rate cuts.
Jim Reid, a strategist at Deutsche Bank, cautioned against overconfidence in expecting the Fed to pivot to a more dovish stance, given that this has occurred multiple times during the current market cycle. While it's clear that interest rates won't keep rising indefinitely, previous hopes for imminent rate cuts were ultimately dashed each time.
In economic news, the U.S. trade deficit for September increased by 4.9% to $61.5 billion, and consumer credit data for September is scheduled for release at 3 p.m. Eastern time.
Several Fed officials are slated to speak throughout the day, including Gov. Christopher Waller discussing the value of economic data at 11 a.m., and New York Fed President John Williams addressing the Economic Club of New York at noon.
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