1. Moving the markets

Stocks initially surged as Wall Street sought to recover from the early second-quarter slump.

However, by the end of the day, most gains had evaporated, leaving the major indexes struggling to maintain positive territory after an unexpected large-scale sell-off in the final hour.

Nvidia, a standout in artificial intelligence, saw its shares rise in Wednesday’s morning session, contributing to a more positive outlook across the market. Other tech giants, such as Netflix and Meta, also enjoyed gains of over 1%.

Despite this, the specter of higher interest rates continued to loom over the market, a trend that has persisted since the start of the quarter. The release of ADP’s data today, which showed a larger-than-anticipated increase in private payrolls for March, signaled economic resilience.

This comes amid growing investor anxiety regarding the Federal Reserve’s future interest rate decisions. Atlanta Fed President Raphael Bostic, in a statement to CNBC, projected only one rate cut this year, expected in the fourth quarter.

His comments echoed the sentiments of several Federal Reserve officials, including Chair Jerome Powell, who addressed the media and public across the nation today. Market predictions indicate a 94% chance that interest rates will hold steady at the Federal Reserve’s May meeting.

Expectations for a rate cut in June have decreased significantly, now standing at a 54.2% likelihood, down from 70.1% just a week prior.

The yield on the U.S. Treasury 10-year note reached a peak not seen since November, curbing stock market advances. Concurrently, oil prices hit their highest since October. Despite a challenging start to the quarter, some traders remain hopeful, suggesting that the market is poised for a period of stabilization rather than a steep decline.

Bond yields, which had been rising, settled unchanged by the close of trading. The dollar fell to a one-week low, which, coupled with higher bond yields, propelled gold to its fifth consecutive record close, nearly reaching the $2,300 mark.

As gold continues its ascent, one must wonder: What insights does the precious metal hold that remains elusive to traders?

1. Moving the markets

The Dow experienced a decline for the second consecutive day, managing to recover only a portion of the initial losses. This downturn contributes to a disappointing beginning to the quarter for Wall Street, as bond yields rose and market participants adjusted their expectations, now doubting a Federal Reserve interest rate cut in June.

The stock market’s second quarter has been challenging, with persistent inflation concerns and robust economic indicators driving yields upward, diminishing the likelihood of a rate reduction by the Fed next month. The yield on the 10-year Treasury note soared to its highest point since late November, and oil prices reached a peak not seen in five months, exacerbating inflationary pressures.

I have consistently highlighted the issue of inflation, which is just starting to manifest due to growing debt and deficits, setting the stage for further economic strain. The Federal Reserve seems committed to maintaining higher interest rates for an extended period.

Despite this, optimism remains, with the S&P 500 marked a 10% increase for the first quarter—the strongest opening since 2019. Traders had hoped that inflation would decrease sufficiently for the Fed to commence rate cuts while the economy continued to expand. However, I view this optimism with skepticism.

Today’s economic reports were mixed, with the labor market remaining robust and factory orders exceeding expectations. Conversely, the decline in durable goods orders and shipments for February indicates potential GDP contraction.

These indicators have not significantly swayed the market’s rate-cut forecasts, which currently stand at a mere 50% chance of a June reduction. Meanwhile, U.S. macroeconomic surprise data has shown improvement following a recent downturn.

Federal Reserve official Loretta Mester expressed a cautious stance, suggesting that more data is needed to determine if the disinflation trend is faltering or merely experiencing a temporary setback. She emphasized the risk of prematurely lowering the federal funds rate, especially given the strength of the labor market and overall economic growth.

Yesterday’s optimism was dampened as bond yields increased further, pushing the 10-year yield to its highest level since the previous November, and undermining bullish sentiment.

In a surprising turn, the dollar weakened, reversing most of its gains from the day before. Gold, on the other hand, surged to a new intra-day high of $2,277 before retreating at the close, while silver outperformed, reaching $26 for the first time since May 2023.

Crude oil prices also climbed, surpassing $85 and reaching their highest point since last October, challenging the narrative that inflation is under control. Ultimately, the specter of stagflation looms, as depicted in a chart from ZeroHedge, succinctly captured by the equation:

“No growth” + “increasing inflation” = “rising gold prices.”

Got gold?

1. Moving the markets

Today, the major stock indexes experienced a decline as Wall Street began the second quarter with a cautious eye on the latest U.S. inflation figures. These concerns stem from the possibility that the ongoing market rally might lose its momentum.

The Personal Consumption Expenditures (PCE) price index, excluding food and energy, indicated a 2.8% rise in inflation for February, aligning with analysts’ forecasts. This key inflation metric, which the Federal Reserve monitors closely, also showed a month-over-month increase of 0.3%.

Federal Reserve Chair Jerome Powell, in remarks made last Friday, suggested that there is no immediate need to lower interest rates, citing the current strength of economic growth and the labor market, despite inflation rates remaining above the target. Powell emphasized the importance of a cautious approach to any rate cuts, given the positive economic indicators and a downward trend in inflation.

Following the release of this data and Powell’s comments, bond yields saw a significant uptick, with the benchmark 10-year Treasury yield climbing over 12 basis points to reach 4.33%. This rise in yields exerted pressure on the stock market throughout the day. In a somewhat unexpected turn, the dollar’s value increased, and concurrently, gold prices soared to new heights, signaling that concerns over inflation are still predominant.

The likelihood of a rate cut in June has diminished, now standing at a 50% chance compared to last week’s more optimistic 75%. This shift is due in part to the persistent inflation signals emerging from various Purchasing Managers’ Indexes (PMIs).

With the markets appearing overextended by many standards, a correction seems inevitable. The critical question now is:

Could the combination of rising yields and gold prices be the catalyst for a market pullback?