Last month, the bond market was almost fully pricing the first interest rate cuts from the Federal Reserve in March.
Now, though the odds for a 25 basis point cut in that month are down to more like 50/50.
Today, January 17, the yield on the 10-year Treasury rose another 5 basis points to 4.10%.
The yield on the 2-year Treasury Treasury closed up at 4.36%. The dollar rose. The Standard & Poor’s 500 continued its string of losses with a drop of 0.56%. The Dow Jones Industrial Average slipped 0.25%. The NASDAQ Composite lost 0.59% and the NASDAQ 100 dropped 0.56%. The small-cap Russell 2000 was down 0.73%. The CBOE S&P 500 Volatility Index (VIX) rose to 14.79, up 6.86%. The close was the highest since November.
What drove the continued climb in yields (and the drop in bond prices) and more losses in stocks? U.S. retail sales rose at the strongest pace in three months in December. Retail sales rose 0.6% in December, the strongest pace in three months. The strong sales growth argues that the Federal Reserve will be slower than expected to cut interest rates. Bond traders are now looking for cuts of a total 140 basis points in 2024. That’s down from expectations for almost 175 basis points in cuts.
