Financial markets are bracing for what could be another momentous week, with a Federal Reserve meeting, U.S. employment data and earnings from technology heavyweight Apple Inc possibly setting the course for stocks and bonds the rest of the year.
So far October has lived up to its reputation for volatility, as a surge in Treasury yields and geopolitical uncertainty hitting stocks. The S&P 500 index is down 3.5% for the month, adding to losses that have left it over 10% off its late-July high.
Whether the ride remains rough for the rest of 2023 may depend in large part on the bond market. The Fed’s ‘higher for longer’ stance on interest rates and rising U.S. fiscal worries pushed the benchmark 10-year Treasury yield – which moves inversely to prices – to 5% earlier this month, the highest since 2007. Higher Treasury yields are seen as a headwind to stocks, in part because they compete with equities for buyers. It was little changed at 4.838% after crossing 5% earlier in the week.
Investors worry that yields could rise further if the Fed reinforces its hawkish message at the central bank’s Nov. 1 monetary policy meeting. Strong U.S. employment data next Friday could also be a catalyst for yields to rise if it bolsters the case for keeping rates elevated to cool the economy and prevent inflation from rebounding.
Investors are playing a “waiting game of how much does each economic data point need to increase to put another rate hike back on the table,” said Alex McGrath, chief investment officer for NorthEnd Private Wealth.
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