Investor confidence in the Federal Reserve’s interest rate path is dwindling, and inflation data next week will be crucial for a flagging market. The recent strong economic data has added to fears that the Fed may cut even less than projected last month.
Friday’s jobs report showed a blowout number, exacerbating the sell-off in the stock market, with the Dow Jones Industrial Average falling nearly 700 points. The bond market is also on edge, with the 10-year Treasury yield spiking to its highest level since late 2023.
Investors are watching for inflation data closely, as they fear it may confirm pricing pressures will continue, despite President-elect Donald Trump’s economic policies. Experts say that if inflation data confirms the Fed’s expectations, interest rate cuts may be less likely, or even reversed.
The market is currently pricing in a roughly 40% chance of just one interest rate cut this year, but no cuts are expected at the upcoming Fed meeting. The S&P 500 is trading near its highest multiple since 2021, and investors will have to rely on earnings growth to power the market this year, an endeavor made more challenging by rising inflation and higher yields.
Cash has emerged as a top pick for investors, who see it as a safe-haven option due to the uncertainty in the market. The bond market is also under pressure, with the 10-year Treasury yield near the psychologically important 5% level.
Source: https://www.cnbc.com/2025/01/10/stock-market-next-week-outlook-for-jan-13-17-2025.html