Markets today: S&P 500 hit by Fed-pivot rethink and war jitters

Wall Street traders sent stocks and bonds sliding after another hot inflation report signaled the Federal Reserve will be in no rush to cut rates this year. Oil climbed as geopolitical jitters resurfaced.

Equities extended their April losses, with the S&P 500 down about 1 per cent as the consumer price index beat forecasts for a third month. In a hawkish reprice of the Treasury curve, 10-year yields topping 4.5 per cent and Fed swaps are now showing bets on only two rate cuts for 2024. A sharp reversal in oil also weighed on sentiment, with Bloomberg News reporting the U.S. and its allies believe major missile or drone strikes by Iran or its proxies on Israel are imminent.

As the Fed rides the “last mile” toward its 2 per cent inflation goal, the concern is that price pressures may not be just a “bump in the road” — with the higher-for-longer rate narrative taking hold. Minutes of the last Fed meeting showed “almost all” officials judged it would be appropriate to pivot “at some point” this year. But inflation since then has upended market bets.

“It’s often said that the Fed takes the escalator up and the elevator down when setting rates,” said Richard Flynn at Charles Schwab. “But for the path downwards in this cycle, it looks like they will opt for the stairs.”