Stocks down, bonds down. The return of the stock market to Wall Street?

While the declines in America on Tuesday were still very mild, they became more defined on Wednesday, although still not very strong. The S&P500 lost 0.47% and ended the day at 3,951.61 points. The Nasdaq index fell by 0.66%, to close at 11,379.48 points. Dow Jones defended itself, gaining 0.02% cosmetic.

The mood on Wall Street deteriorated visibly at 16:00 when the ISM February report showing the economic situation in the manufacturing sector was released in the markets. This indicator rose to 47.7 points. From 47.4 points recorded in January. However, it was still a stagnant reading (ie, less than 50 points) and below most analysts’ expectations (48 points). Investors weren’t interested in the industrial downturn itself (because it’s been going on since November), but with Sudden increase in the price sub-index (return above 50 pips)Another pebble thrown into the garden of purification.

The ISM report was another drop in the cup of rising interest rates. The futures market is increasingly concerned that the Federal Open Market Committee (FOMC) will decide to hike the rate by 50 basis points at the March meeting. At the moment, a move of 25 basis points is expected. And then, 25 again, bringing the federal funds rate range to 5.25-5.50% at the end of June. And just a month ago, the market predicted that March’s 25-point increase in FFR would be the last of the cycle.

Therefore, what happened in the debt market was much more important than the somewhat mediocre reaction of the stock market. The yield on 10-year US government bonds rose by about 8 basis points. For the first time since November, it exceeded 4%. 2Y Tresials already pays close to 4.90% – more than 8 bits per second. More than the previous day and indeed by 80 basis points. Since more than a month. An increase in a bond’s yield (at maturity) indicates a decrease in its market price.

Macroeconomic data and debt market behavior show that investors expect an additional and significant increase in interest rates in the United States. In the summer and fall of last year, such a scenario caused a strong sell-off in US stocks. This was a logical consequence of rising rates, as investors discount expected future cash flows from companies. But this time, Wall Street really doesn’t want to go lower, despite the resulting misery delivered by S&P500 issuers last quarter.

Also in Europe, inflation data points to a persistent rise in consumer prices – especially in the services sector. Analysts say that such a situation will force central bankers to raise interest rates even more and significantly postpone the first cuts, which the market predicted in November or December 2023. The history of recent decades on Wall Street proves that the US stock market is characterized by a downward trend only when interest rates fall .