With a Federal Reserve meeting, U.S. employment statistics, and earnings from tech giant Apple Inc. (AAPL.O), which may potentially determine the direction of equities and bonds for the remainder of the year, financial markets are ready for what might be a historic week.
Monetary Policy Meeting
Given the pressure on stocks from rising Treasury yields and geopolitical unpredictability, October has lived up to its image as a volatile month. The S&P 500 index (.SPX) has lost more than 10% of its value since its late-July peak, with losses totalling 3.5% for the month.
The bond market could play a major role in determining if the ride stays difficult for the remainder of 2023. The benchmark 10-year Treasury yield, which is inversely correlated with price movements, reached its highest level since 2007 earlier this month due to the Federal Reserve’s ‘higher for longer’ attitude on interest rates and growing concerns about the US government’s finances. Since they compete with stocks for buyers, higher Treasury yields are perceived as a negative for stocks.
Increase In Yield
Investors are concerned that if the Fed maintains its hawkish stance at its monetary policy meeting on November 1, rates may increase much more. Strong U.S. employment data on Friday might potentially spur an increase in yields if it supports the argument for maintaining high rates in order to slow the economy.
Charlie Ripley, senior investment strategist at Allianz Investment Management, stated, “It feels like we are at a crossroads whether or not the strong growth we’ve seen over the summer months will continue over the fourth quarter,” and fuel concerns about inflation and tight monetary policy.
The Treasury is anticipated to reveal the proportions of its next auction later this week, which will only heighten the anxieties of the bond market. Increased supply and concerns over the federal budget have contributed to higher yields.
In general, some people think that this year’s stock market trading patterns indicate a fourth-quarter resurgence.
According to Ned Davis Research, the index has grown each of the 14 times the S&P 500 has gained at least 10% through July before declining in August, as it did this year. These occurrences have all occurred over the latter four months of the year. In such cases, the average gain has been 10%.