Today about what happened with 10-year US Treasury and S&P500 after the hawkish employment report (February 2) and a generally hawkish series of speeches by FOMC members, starting with Powell and his interview for "60 Minutes".
Yields on 10-year bonds increased from approximately 3.88% (publication of the employment report) to 4.17% and after yesterday's downward correction, we are currently around 4.09%. However, the entire move of 29bps is a lot. To illustrate how much this is, it’s worth mentioning that such an increase reduced the probability of a rate cut on March 20 from 80% to 15%.
However, stocks (S&P500) did not care too much about the labor market report. They did a bit after a series of hawkish FOMC members’ speeches, but “net net”, as of yesterday's close, the S&P500 is only about 6 points lower (-0.08%) since the release of the jobs report last Friday.
Figure 1 compares the current cycle with that of 2018-2020. What has the FED, S&P500 and 10-year UST yields done since the last rate hike in the cycle. Figure 2 shows the same comparison for the 2006-2008 cycle.
It can be said that in 2007-2008 the stock market did not care until the third rate cut by the Fed. Yet in 2019 cycle... after the third rate cut, the S&P500 even accelerated to the upside, betting on lower rates and a possible soft landing.
But at the end of the day, in both cases, we had a hard landing and the Fed lowered rates to zero.
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