U.S. equities notched their worst week since February after Federal Reserve officials signaled that rate hikes could come sooner than expected. The prospect of lower long-term inflation delivered blows to cyclical sectors and months of gains by value stocks — those that look cheap relative to their companies’ fundamentals.
On Wednesday, Fed policymakers released forecasts that show they anticipate two interest-rate increases by the end of 2023 — sooner than many thought — and they upgraded estimates for inflation for the next three years.
“In reaction, the market bid up the yields on shorter-dated Treasuries while the yields on longer dated ones fell to levels last seen at the beginning of March,” said Anu Gaggar, a senior analyst at Commonwealth Financial Network.
Other economic data sent mixed signals. While the number of people still receiving emergency assistance dropped to a seven-week low, initial jobless claims from last week unexpectedly rose to 412,000 from 375,000, well above projections.
“Investors should expect more immediate-term volatility until greater certainty and consistency manifests among economic data, Fed policy, corporate earnings and current geopolitical jitters, including U.S. relations with China and Russia,” said Greg Bassuk, CEO at AXS Investments.
On Friday, the government report on U.S. personal incomes and spending in May will illuminate consumers’ spending shift toward services now that many covid restrictions have lifted. The same report will also provide the latest update of the Fed’s preferred inflation metric.
The Treasury will sell 13-week and 26-week bills on June 21. They yielded 0.05 percent and 0.06 percent in when-issued trading, respectively. The government will auction two-year notes the next day, and five-year notes and two-year floating-rate notes go on sale June 23. On Thursday, it will auction seven-year notes and eight-week and four-week bills.
— Bloomberg News