The unexpected strength of the US economy, underscored by a surprising payrolls report, has shifted market expectations regarding Federal Reserve rate cuts. Previously, traders anticipated multiple rate reductions this year, but now only one cut seems plausible, if at all. This robust labor market data has led to a rise in Treasury yields, negatively impacting bond prices and exerting pressure on equities. The increase in yields has particularly affected interest-sensitive sectors such as real estate, which emerged as the worst-performing sector this week. Despite these challenges, US equity markets have shown resilience, buoyed by the strong economic backdrop and potential future tax cuts. However, the depreciation of emerging market currencies continues as capital flows towards higher-yielding US assets.
The iShares Core S&P 500 ETF (IVV) experienced a decline, dropping 1.53% to $583.15 at 16:20 on Friday, January 10.