The U.S Two-year Yield Reaches 4.9% After Economic Data

Treasury yields experienced an uptick following the release of data indicating a further rise in consumer expectations for year-ahead inflation. Traders meticulously assessed a plethora of economic indicators to glean insights into the potential course of action the Federal Reserve might take next.

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Two-year US yields surged past the 4.9% mark, contributing to the dollar's trajectory toward its most substantial gain in nearly six weeks. The S&P 500 recorded a modest advance, while Apple Inc. lingered near its remarkable $3 trillion valuation. Amazon.com Inc. witnessed a rally in anticipation of the commencement of the holiday shopping season. Microsoft Corp. saw an increase in its stock value following the announcement that Sam Altman would resume leadership at OpenAI. However, Nvidia Corp. experienced a decline after the release of its financial results. Concurrently, the oil market underwent a downturn.

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Quincy Krosby, Chief Global Strategist for LPL Financial, remarked on the consumer perspective, noting that there is a perception of inflation escalating both in the short term and over an extended period. This sentiment poses a challenge for the data-dependent Federal Reserve, as unanchored consumer inflation expectations historically complicate the task of resetting consumer psychology toward a lower inflationary environment.

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In other economic developments, applications for US jobless benefits decreased in the past week, offering a slight respite from the previous trend of increases in a labor market that has been gradually cooling. Additionally, durable goods orders for October fell more than anticipated, primarily driven by a retreat in commercial aircraft bookings and weakened demand for business equipment.

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The month has witnessed a rebound in equities as investors speculate that the Federal Reserve has concluded its cycle of interest rate hikes. The minutes from the Fed's recent meeting revealed a consensus among policymakers to proceed cautiously with future rate moves, aligning any tightening with progress toward their inflation goal.

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Looking ahead, Lori Calvasina at RBC Capital Markets projects that the S&P 500 will surge to a record high next year, propelled by positive sentiment and resilient valuations. Calvasina highlighted the constructive sentiment setup, citing an investor appetite indicator that has proven reliable in 2023, suggesting potential for a 10% gain in the S&P 500 over the next 12 months. She emphasized that valuations could remain higher than perceived by many investors, as the moderation in inflation is expected to uphold price-to-earnings multiples.

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On a different front, the oil market experienced a slump due to the postponement of the OPEC+ meeting scheduled for the weekend. This delay has tempered traders' expectations of potential intervention by the cartel to tighten supplies.

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