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An inflation surprise greeted investors on Wednesday, sparking significant apprehension about the future of interest rates.
The discussion regarding Fed rate cuts seems to be postponed for the time being following a surge in the inflation rate to 3.5% in March 2024, surpassing estimates of a 3.4% increase.
What’s even more concerning is that core inflation, which excludes volatile food and energy prices, remained steady at 3.8%, defying expectations of a decline to 3.7%.
Many economists cautioned Wednesday there is no chance the Fed will reduce interest rates in June, with the likelihood of higher-for-longer interest rates gaining pace.
Money markets are pricing in a 44-basis-point reduction in rates by year-end, with September being considered the most probable option for the onset of the easing cycle. Yet there are increasing risks that September could represent the sole reduction in 2024.
By midday trading in New York, all major indices were in the red, with small caps underperforming large caps. Sector-wise, real estate stocks were the hardest hit, given their heightened sensitivity to interest rates.
Yields on two-year Treasurys spiked by 20 basis points to 4.95%, registering the widest one-day increase in more than a year. Bonds collapsed, with the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) sinking 1.6%.
The greenback served as a safe haven, with the U.S. Dollar Index (DXY), as measured by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), rising by 1.1%. This marked its strongest session since the Silicon Valley Bank failure in March 2023.
Gold experienced a decline of 0.6%, while Bitcoin (CRYPTO: BTC) only eased by 0.2%, with both assets displaying some resilience despite the widespread market volatility.
Major Indices | Price | 1-day %chg |
S&P 500 | 5,149.49 | -1.2% |
Nasdaq 100 | 17,952.05 | -1.2% |
Dow Jones | 38,377.89 | -1.3% |
Russell 2000 | 2,026.91 | -2.7% |
The SPDR S&P 500 ETF Trust (NYSE:SPY) plummeted 1.2% to $513.26, the SPDR Dow Jones Industrial Average (NYSE:DIA) was 1.3% down to $383.79 and the tech-heavy Invesco QQQ Trust (NASDAQ:QQQ) fell 1.1% to $437.32, according to Benzinga Pro data.
Sector-wise, the Real Estate Select Sector SPDR Fund (NYSE:XLRE) plummeted, down over 4%, while the Energy Select Sector SPDR Fund (NYSE:XLRE) managed to trim losses, down only by 0.3%.
Photo via Shutterstock.
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