The US economy's unexpected strength, highlighted 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 Bloomberg Global Agg bond index has declined for the fifth consecutive week, reflecting the broader impact of rising yields on global fixed income markets.
The increase in yields has particularly affected interest-sensitive sectors such as real estate, which emerged as the worst-performing sector this week. Despite the 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 upcoming earnings season, with major banks set to report, is expected to influence equity trading in the coming days.
The S&P 500 Index is currently at 5,827.04 as of 16:11 on January 10, down from its last close of 5,918.25. The index opened at 5,890.35, reaching an intraday low of 5,807.78, as investors digest the implications of the robust economic data and rising yields.