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The S&P 500 marched higher over the past week, notching consecutive gains not seen in years.
Dreamstime
Stocks were holding steady on Tuesday as market participants flocked to bonds after several Federal Reserve officials noted that interest rate increases are on their radars.
Futures for the
Dow Jones Industrial Average
indicated an open 43 points, or 0.1%, lower, after the index climbed 104 points Monday to close at 36,432. Futures for the
S&P 500
were essentially flat. The
Nasdaq Composite
was on track to open 0.3% higher. All three indexes ended Monday at fresh records.
Federal Reserve Bank of Chicago President Charles Evans said that he had thought inflation would have declined more than it has by this point. That furthers the case for an interest rate hike sooner rather than later.
On Monday, Federal Reserve Vice Chair Richard Clarida said that the central bank could easily lift interest rates by the end of 2022. The Fed funds futures market currently forecasts a 44% chance of a rate hike in June 2022, up from 27% a month ago.
The danger isn’t that the Fed will hike rates while the economy is strong. It’s that high inflation will eat into economic demand—and then the Fed will raise rates, further denting economic growth.
That sent the price of the 10-year Treasury note up, bringing its yield down. The yield dropped to 1.45% from 1.49% overnight. Lower Treasury bond yields reflect dimming expectations for long-term inflation, a result of lower demand.
Meanwhile, short-term interest rates were holding steady, reflecting unwavering expectations for Fed rate hikes and high inflation in the near-term. The 2-year Treasury yield rose to as high as 0.43%, up from 0.41% overnight.
The bond market may looks a little scary for the moment, but fears that the Fed could damage economic growth may not be entirely to blame. Higher prices on long-dated Treasuries could be technical; some on Wall Street note that buyers could be forcing short sellers of the bond to buy it back.
The market, though, did get some inflation data to chew on. The producer-price index rose 0.6% month-over-month in October, in line with estimates. The year-over-year rise was 8.6%, the same growth rate seen last month. For now, a shortage of goods is partly causing costs for companies to soar, incentivizing firms to raise prices, which in turn captures the Fed’s attention.
But markets will look to weekly and monthly changes in the prices of containers, transportation, materials and…
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