Frazzled U.S. stock investors eye frothy Treasury market as Fed looms
By David Randall
NEW YORK (Reuters) -Financial markets are bracing for what could be a momentous week, with a Federal Reserve meeting, U.S. employment data and earnings from technology heavyweight Apple Inc (NASDAQ:AAPL) possibly setting the course for stocks and bonds the rest of the year.
October has lived up to its reputation for volatility, as a surge in Treasury yields and geopolitical uncertainty pressured stocks. The S&P 500 index is down 3.5% for the month, adding to losses that have left it over 10% off its late-July high.
Whether the ride remains rough for the rest of 2023 may depend in large part on the bond market. The Fed's 'higher for longer' stance on interest rates and rising U.S. fiscal worries pushed the benchmark 10-year Treasury yield — which moves inversely to prices — to 5% earlier this month, the highest since 2007. Higher Treasury yields are seen as a headwind to stocks, in part because they compete with equities for buyers.
Investors worry that yields could rise further if the Fed reinforces its hawkish message at the central bank's Nov. 1 monetary policy meeting. Strong U.S. employment data next Friday could also be a catalyst for yields to rise if it bolsters the case for keeping rates elevated to cool the economy and prevent inflation from rebounding.
«Stocks will start to recover when the market believes that bond yields have peaked,» said Sam Stovall, chief investment strategist at CFRA Research.
Overall, futures markets are pricing in a near-certainty that the Fed does not raise rates in November, and a nearly 80% chance that the central bank holds rates steady in December, according to CME's FedWatch Tool. Still, policymakers have projected they will keep the key policy rate at current
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