(Bloomberg) --Treasury yields fell amid market expectations that the Federal Reserve will keep its interest rates steady for the first time in 15 months to evaluate whether or not further tightening is needed.
Bonds reversed course on Wednesday, with yields dropping across the curve, after another inflation reading showed signs of cooling. The market for wagers on the outlook for central bank policy shows traders now expect the benchmark rate to peak in
Fed policymakers are poised to pause their hiking of interest rates, while retaining a tightening bias that signals a possible resumption of moves if warranted. The rate decision and committee economic forecasts — the "dot plot" — will be released at 2 p.m. in Washington. Chair Jerome Powell will hold a press conference 30 minutes later.
"A skip is NOT likely an all-clear sign that the Fed is done and that any easing is imminent," wrote Brian Rauscher, head of global portfolio strategy at Fundstrat. "The odds for the next Fed action still favors a hike and that the central bank is still a long way away from being able to declare victory over inflation."
Read: 'Hawkish Skip' to Leave Fed Room for Final Hike: Economics
Even with an expected pause in Fed hikes and an artificial intelligence boom that helped drive the S&P 500 into a bull market, there's more pain ahead for stocks, according to Morgan Stanley's Mike Wilson. He reiterated his year-end price target of 3,900 for the gauge, which implies an 11% drop from Tuesday's close.
"Our view is that inflation is going to come down, and while that potentially is very good for bonds, it's not going to be good for stocks because that's where the earnings power is coming from — this is really our boom-bust thesis."
The last increase in borrowing costs since the 1950s has typically been bearish for stocks six months later, but not since former Fed Chair Alan Greenspan was at the helm of the central bank.
Since the 1950s, the S&P 500 declined a median of 5.5% six months after the last rate hike, according to data compiled by Ned Davis Research. But in recent decades it's been bullish for stocks, with the benchmark equities gauge climbing more than 10% six months later in four of the past five final rate hikes.
In corporate news, Advanced Micro Devices Inc. gained after the chipmaker showed off its planned line of artificial intelligence processors. Charles Schwab Corp. expects its revenue to slide as much as 11% in the second quarter. UnitedHealth Group Inc. sank as an executive said a recent increase in surgeries and other medical care might push expenses higher than anticipated.
Key events this week:
- China property prices, retail sales, industrial production, Thursday
- European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
- US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
- Bank of Japan rate decision, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 9:53 a.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average fell 0.3%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.4%
- The euro rose 0.5% to $1.0842
- The British pound rose 0.6% to $1.2686
- The Japanese yen rose 0.5% to 139.48 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $26,001.9
- Ether rose 0.2% to $1,741.5
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.78%
- Germany's 10-year yield advanced three basis points to 2.46%
- Britain's 10-year yield declined one basis point to 4.42%
Commodities
- West Texas Intermediate crude rose 1.3% to $70.31 a barrel
- Gold futures rose 0.6% to $1,970.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Brett Miller, Tassia Sipahutar, John Viljoen, Vildana Hajric, Carly Wanna and Isabelle Lee.
© 2023 Bloomberg L.P.
