Stock-market bulls defiant as bond market surrenders to Fed. Here's what to watch.

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The U.S. bond market blinked in a staring contest with the Federal Reserve over future interest rate hikes. The stock market, not so much.

It took a while, but Federal Reserve Chair Jerome Powell has prevailed in a contest that for a while saw traders refuse to price in a higher and longer-lasting rise in interest rates in 2023. The capitulation has also lifted the U.S. dollar and in turn put a lid on commodity prices.It took a while, but Federal Reserve Chair Jerome Powell has prevailed in a contest that for a while saw traders refuse to price in a higher and longer-lasting rise in interest rates in 2023.

Then a run of economic data began to flow in. A red-hot January jobs report on Feb. 3 was followed by Tuesday’s consumer-price index reading that showed inflation continued to slow but was proving sticky in important areas. Wednesday delivered a much stronger-than-expected January retail sales reading.

Treasurys have sold off, sending yields jumping, particularly at the short end as investors price out expectations for near-term cuts. The yield on 6-month Trasury bills TMUBMUSD06M this week moved above 5% for the first time since 2007, while the 2-year Treasury yield TMUBMUSD02Y is trading at its highest since November and the 10-year Treasury yield TMUBMUSD10Y rose to a new-year high.

While stocks were lower on Thursday, the tech-heavy Nasdaq Composite COMP remained on track for a 2.5% weekly gain, while the S&P 500 SPX and Dow Jones Industrial Average DJIA were also positive on the week.

 

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Fed should do emergency.25. Retail bulls seem defiant.

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