Bond yields in the US have risen even though there are no significant factors or special data released that will drive this movement immediately. Investors are closely monitoring new economic data and are waiting for the next meeting of the Federal Reserve to gain insight into the question of when the central bank might start lowering interest rates. Earlier this month, yields fell because we got soft jobs data and easing inflation, this is also what signaled interest rate cuts in the near term. Indeed, market sentiment points to some interest rate cut in September, yet Fed officials remained cautious, stressing the need for more economic data before making firm decisions. We note that key data to monitor next week include on Thursday the GDP in the second quarter and on Friday the June personal consumption expenditures (PCE), these should give us a clearer picture of the economic situation at this point in time.
All eyes on the economic data and the Fed
Market participants are closely following the Fed’s actions, with the increase in bond yields indicating increased interest on their part. As of Friday, the two-year yields climbed 5 basis points to 4.509%, while the 10-year yields rose 5.5 basis points to -4.241%. The yield curve has also indented slightly, which reflects the market’s expectations that the shorter-term yields will fall faster than the longer-term yields due to the expectations of the Fed’s interest rate cuts Investors are supposed to be given quite critical insights in the process of evaluating the movement of the market in the future.
Two-year, ten-year and thirty-year US bonds. Daily chart by TradingView
The bigger picture: a cautious approach to interest rate cuts
Federal Reserve officials have hinted that improving economic conditions make a rate cut more likely, but they are still non-committal about the timing. Some strategists note that while the market is confident of a September rate cut, the Fed’s cautious tone reflects concerns about economic uncertainty. Weaker labor market conditions and inflation, especially after a more challenging first quarter – all these only contribute to this very cautious optimism. Therefore, investors with their hand on the pulse regarding the upcoming economic data and Fed comments to try to more clearly assess the degree of likelihood of lowering the interest rate.
What else can encourage investors?
Strong earnings from leading technology companies may ease investor concerns about the sector’s overvaluations and volatility. Nvidia, for example, has soared 145% this year despite the recent drop in its share price, another reflection of investor concerns about its earnings and stability going forward. the future Companies like Alphabet, Tesla, Amazon, Microsoft, Meta, Apple and Nvidia have accounted for about 60% of the S&P 500’s gains this year. But in the meantime, the S&P 500’s tech sector fell nearly 6% in just over a week, shedding about $900 billion in market value despite hopes for a solid earnings season. By contrast, the broader S&P 500 fell just 1.6% over the same period.
If so, big tech players like Tesla and Alphabet will report earnings on Tuesday, with Microsoft and Apple reporting next week. Investors are also eagerly awaiting these data to calm concerns regarding overestimations and volatility in the technology sector. Positive results from these companies are absolutely essential to maintaining the dominance of the technology sector in particular and can boost broader market sentiment as well.
The article does not contain any recommendation to perform any action, including the purchase/buying/holding of the types of securities that appear in the article. As a general rule, the reader must do in-depth research with regard to any investment idea.
