Panic in the stock market happens hesitantly and then all at once. The S&P 500 (SPY) is starting Q2 with more uncertainties. Last Friday, markets were closed for trading when the government released core PCE (inflation) figures. The price pressures will likely delay Fed Chair Powell from announcing a rate cut in the near term.
Fedspeak on Thursday did not help the Nasdaq (QQQ) or Russell 2000 (IWM) either. Minnesota Fed President Neel Kashkari suggested that a lag in lowering inflation would result in no interest rate cuts in 2024. Oil, now trading at $90/bbl, is an inflationary force that the Fed has no control over.
This morning’s non-farm payroll report will also reset the stock market’s sentiment in the coming days and weeks. Watch Treasury bond yields. Last Dec. 2023, markets confidently believed the Fed would cut rates six times this year (25 bps x 6 for 1.5%). TLT stock traded at a $100 high before closing at $92.68. The bond ETF is down 6.27% YTD.
Banks are at higher risk of a sell-off. Without a rate cut, the economy risks slowing down. This hurts deal volumes for JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC). Canadian banks like TD Bank (TD), Bank of Nova Scotia (BNS), and Royal Bank (RY) are at 52-week highs. They, too, would risk falling if markets grow fearful of wage inflation.
