Treasuries had rallied last week after Fed Chair Jerome Powell signaled that the pace of future increases may slow later this year, increasing the odds for cuts next year in market-implied measures. Several Fed leaders have since said the central bank is far from done with tightening and remains laser-focused on tamping down price gains that are the hottest in four decades.
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“If there is a change in tone by Fed members, it is similar to a parent that is finally telling the kids that you’ve had enough candy, no more,” wrote Peter Boockvar, chief investment officer at Bleakley Financial Group.
“For decades the Fed always gave the markets more candy, especially when the kids raised out for it. Now, the kids are going to have to do without as long as inflation is at the very unsatisfactory levels that it’s pacing at, even with an expected fall.”
Markets are also somewhat calmer as US-China tensions simmered after House Speaker Nancy Pelosi left Taiwan. Her visit from Ella had provoked an angry response from China, and markets were on the edge ahead of her arrival from Ella on Tuesday.
US stocks were roaring on Wednesday after a session with many twists and turns the previous day.
PayPal jumped 8.9 per cent on a report that activist investor Elliott Management has taken a large stake in the payment company.
Robinhood Markets, whose stock trading app helped bring a new generation of investors to the market, rose 11.9 per cent following an announcement that it’s cutting nearly a quarter of its workforce. Crashing cryptocurrency prices and a turbulent stock market have kept more customers off its app.
But the strong equities trading doesn’t reflect the headwinds confronting the market, according to Goldman Sachs strategist Sharon Bell.
“There’s a little bit of complacency in there and markets are not fully taking into account the risks,” Bell said in an interview with Bloomberg TV.
Seeing riskier areas of the equity market reprice higher as some earnings estimates get slashed indicates that investors may be overly optimistic, said Emily Roland, co-chief investment strategist at John Hancock Investment Management.
“In this environment, we would rebalance into quality companies and sectors that have strong balance sheets and more durable profitability,” she said. “This is not the right time to emphasize cyclical areas or ones that have a greater need for capital.”
Oil fell after a brief rally as traders mulled the lack of relief for oil markets and a poor demand outlook. The US dollar wall gains after jumping to its highest in a week.
with Bloomberg
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