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The bond and stock markets have finally reached consensus on the Federal Reserve.
Stocks and real 10-year Treasury yields are starting to reverse again, according to a Morgan Stanley research note. The real yield is the return an investor gets from a bond taking inflation into account. This is a reversal from earlier this year when both yields and stocks rose.
The S&P 500 index is up about 17% this year, fueled by big tech companies that have seen big gains on the artificial intelligence craze.
Meanwhile, yields plummeted in March following the failures of Silicon Valley Bank and Signature Bank, but have been creeping up in the months since.
What caused the change? It is unusual for both bond yields and stocks to rise at the same time. Investors tend to prefer bonds to stocks when yields are attractively high.
But George Cipolloni, portfolio manager at Penn Mutual Asset Management, said this year’s unusual pattern was partly due to the divergence between bond and equity markets over expectations of the Fed’s rate trajectory.
Because while stock prices rose on hopes that inflation was easing, Fed will cut rates Sooner or later, yields followed the opposite forecast.
Now, “they seem to have finally come to the same realization,” Cipolloni said.
In fact, the futures market has investors expecting several rate cuts this year before continued Fed rate hikes and hawkish comments raise hopes that the cut will be postponed to 2024. was shown.
At the same time, the latest data show yields have fallen in recent weeks. The economy is cooling.
The latest labor data reveal that the U.S. economy is Only 209,000 jobs were added in Junethe lowest monthly gain since the December 2020 decline.
June’s consumer price index report showed annual inflation slowing to 3%, the lowest level since March 2021. The producer price index rose just 0.1% in the 12 months to June, reaching its highest level. It was the lowest level since August 2020.
The news also strengthened the rally in the stock market. The S&P 500 and Nasdaq Composite Index hit new 2023 highs last week.
Will yields continue to fall? Hard to say, given the still uncertain economic outlook.
Michael Kushma, chief investment officer of Morgan Stanley’s broad-market fixed income division, said yields are likely to continue rising next year, especially as inflation remains above its 2% target. said it expected it to move sideways. The price increase rate is on a downward trend.
‘I don’t think we’re going to see a big drop’ [and] “I don’t think we’re going to see a big uptick,” he said.
My colleague Laura Hee reports that China has become one of the first countries in the world to regulate generative artificial intelligence, the technology underlying ChatGPT.
The Chinese Cyberspace Administration released a series of information. Updated guidelines It was announced last Thursday for the industry, which is set to go into effect on August 15th.
The published version appears to be less strict than the draft released in April. It shows that China sees an opportunity in the industry, which has exploded this year, as it struggles to rekindle economic growth.
The new rules include requirements for generative AI service providers to conduct security reviews and register their algorithms with the government if their services have the ability to “mobilize” the public.
This regulation applies to services available to the general public in China.
Please see here for the detail.
Monday: Revenues from Citizen Financial Services.
Tuesday: June retail sales and homebuilder sentiment. Earnings from Bank of America and Morgan Stanley.
Wednesday: The new house will start in June. Revenue from US Bancorp, First Horizon, Nasdaq, Ally Financial, Goldman Sachs, M&T, Discover.
Thursday: Pre-owned Home Sales and Mortgage Interest Rates in June.
Friday: Earnings from American Express.
