With rising inflation and debt obligations, the market anticipates Fed rate cuts, yet traders remain cautious.
Expectations for Fed Rate Cuts
The market predicts a Fed rate cut in 15 days, but this is not generating optimism among investors. Traders are considering a base case of 50 basis points cut in 2025, with a 34% chance of a 75 basis point cut occurring this year, but current market sentiment is negative.
Bond Market Conditions
Despite the U.S. Treasury issuing over $200 billion in new bonds, the appetite for long-dated debt is waning. Term premiums on 10-year notes are at their highest since 2014, indicating that investors demand greater compensation for risk. Core inflation is again above 3%, creating challenges for buyers.
Stock and Gold Markets Amid Stagflation
While gold is showing strong gains, hitting a historical high of $3,600 per ounce, major stock indices are experiencing declines. The Dow Jones fell by 249.07 points, the S&P 500 dropped 0.69%, and the Nasdaq Composite slid 0.82%. With stagflation evident as youth unemployment reaches 10%, investor caution is palpable.
Despite forecasts for possible Fed rate cuts, rising bond yields and weak stock market performance highlight the challenging economic conditions and indicate stagflation.
