Last week saw major indices doing great despite a problem of inflation in the market, especially for the wages that are growing at 5.6% yearly in March. The Personal Consumption Expenditure (PCE) also rose 5.4% in February. The ISM Manufacturing data PMI also fell sharply in March, reflecting that new orders are slowing in the process of inflation, weighing on sentiments.
The market is building a 100% chance of a rate hike in May and a 71% chance with the likelihood of a 0.5% hike. There are also increasing odds that the rate will eventually rise to 2.5% or 2.7%, suggesting an intense Fed rate hike.
Buying equities at this stage is equivalent to purchasing volatility that investors will have to stomach.
📉The Yield Curve⏳
The inverted yield curve has been the dominant topic in town as the looming fear of a recession is stronger. As a result, investors are looking at economic data more closely than ever to determine the odds of a slowing economy in the sea of headwinds.
Generally, investors will demand a higher yield for holding longer-term securities. An inverted curve occurs when the short term yield is higher than the long term yield. Right now, participants are ignoring the negative connotation of the yield curve given the unique monetary circumstances we are in after crawling out of the pandemic.
However, history does show that the sea waves may be in the making on the stock market if inversion persists.
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