‘Higher for longer’ rates remain a threat to U.S. stocks after inflation data

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The latest U.S. inflation data is unlikely to ease worries over persistently high Treasury yields that have gnawed on stocks over the last few weeks, investors said, although many believe the longer-term trend of cooling consumer prices remains intact.

climbed by 0.6% in August, broadly in-line with economists expectations. In the 12-months through August, the CPI jumped 3.7%, though year-on-year consumer prices have come down from a peak of 9.1% in June 2022.

With the S&P 500 already up over 16% year-to-date and stocks richly valued by some metrics, some investors believe equities from will struggle to make headway for the rest of 2023. Futures tied to the Fed's funds rate now show a 45% chance of at least one rate hike by December, up from a roughly 31% chance seen a month ago. Markets now anticipate that the Fed will cut rates for the first time in July 2024, compared with expectations a month ago that rates would begin falling by March.

Rising Treasury yields, which move in the opposite direction to bond prices, can be a stumbling block for stocks as they offer investors returns on an asset that is seen as basically risk-free because it backed by the U.S. government. The benchmark 10-year Treasury yield was up 2 basis points on Wednesday to 4.284%, putting it about 6 basis points below its highest level since 2007.

 

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