U.S. Treasuries were sold across the board as inflation rose to its highest level since 1982, central bankers said they would curb it by a 1 percentage point hike by July, according to the Market Matrix( MarketMatrix.net.
The 2-year Treasury yield recorded its biggest one-day gain in more than a decade. The 10-year yield rises above 2%. Stocks weren't spared, with the S&P 500 closing down 1.8 percent amid a new round of losses from speculative tech companies.
Hours after the U.S. Bureau of Labor Statistics (BLS) released consumer price index (CPI) data, St. Louis Fed President Ja-mes Bullard called for more aggressive action to curb inflation.
The 2-issue Treasury rate saw its biggest one-day gain since 2009 _By Bloomberg
Subsequently, market pricing showed that the Fed would raise rates by almost 100% by 50 basis points in March, and if implemented, it would be the first such a large rate hike in more than 20 years - you know, that the probability was less than 50% before the CPI data was released.
Jim Bianco, president and founder of Bianco Research, said: "Short-term interest rates have been rising for months as the Fed is expected to take a hawkish stance. But the CPI report is almost a watershed. ”
The 2-year Treasury yield rose more than 20 basis points on Thursday, its biggest one-day gain since June 2009. U.S. Treasuries are down more than 3 percent so far through 2022, and if held until the end of the year, it would be the first two consecutive years of decline in history.
As large stock firms fall, Max Gorkman, AlphaTrAI's chief investment officer, said more and more investors are downplaying the so-called Fed puts, or the idea that U.S. policymakers will step in the first place to support financial markets.
"I think the market is constantly reinforcing these perceptions," he said. There will be many more such days. ”
The U.S. Consumer Price Index has been accelerating _By Bloomberg
Data from Ned Davis Research shows that in historical cycles of rapid rate hikes, the S&P 500 fell by an average of 2.7% in this case, while rising 11% in the case of slower rate hikes.
Unlike in the past, this time it was different in terms of corporate earnings when the Fed tended to raise rates as economic growth accelerated. Data compiled by Bloomberg Intelligence shows profits for S&P 500 constituents are expected to grow 7 percent this year, down from 50 percent in 2021.
Ed Krisod, a strategist at NedDavis, said all of this suggests that it's time for investors to reduce their shares and raise money to prepare for more market turmoil.
Bond investors may also face more blows. Kathleen Kaminsky, portfolio manager and chief research strategist at Quantshop Alpha Simplex Group, said technical signals across the asset class remain very bearish. This suggests that inflation data should be a wake-up call for anyone who is still playing down the threat of upward pressure on prices.
"People are sitting there thinking, 'Well, inflation is going to go away because the pandemic (Covid-19) has calmed down, so the Fed is not going to act,'" she said. But 7.5 percent inflation, worse than last month, made them realize it was really happening. ”
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