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The catastrophic stock rally of 2024 has come to an abrupt halt.
The S&P 500 index is down 4.6% so far in April, and all three major U.S. indexes are on track for their first negative month since last October. The Dow Jones Industrial Average is on the verge of erasing its gains since the start of 2024 — it's up just 0.2% — while the S&P 500 is up 5.1% and the Nasdaq Composite is up 3.9%.
CNN's Fear & Greed Index, which measures seven barometers of market sentiment, closed Thursday with a “fear” reading, lower than its “greed” reading a month ago.
Behind the turmoil? Strong economic data and persistent inflation have led Wall Street to push back its expectations for when the Federal Reserve will begin cutting interest rates. A rise in oil prices due to rising tensions in the Middle East hasn't helped.
Data released this month showed inflation remains stubbornly above the Fed's 2% target. Employers added an impressive 303,000 jobs in March, exceeding expectations. Spending at U.S. retailers rose for the second straight month, underscoring the resilience of U.S. consumers even as interest rates are at a 23-year high.
Then Fed Chairman Jerome Powell said Tuesday that rate cuts will likely come later than expected and that the central bank needs to see further signs of easing inflation before embarking on a turnaround.
According to the CME FedWatch tool, traders now expect the Fed to begin cutting rates in July or September. At the beginning of the year, investors expected up to six rate cuts in 2024 starting in March.
“We believe investors should prepare for a longer-term higher regime in both inflation and interest rates,” wrote Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, in a note Thursday.
The International Monetary Fund on Tuesday raised its forecast for American economic growth this year, but warned that it will be difficult to contain inflation. While the U.S. will be a key driver of global growth, its economy is “overheating,” the organization said.
“This requires a cautious and gradual approach to (monetary) easing by the Federal Reserve,” IMF chief economist Pierre-Olivier Gourinchas wrote in a blog post on the agency’s outlook.
Bond yields have surged this week as investors bet interest rates will stay high for longer than expected. According to Tradeweb, the 10-year U.S. Treasury yield was at 4.65% as of 3:00 p.m. ET on Thursday.
Investors had hoped corporate earnings would help revive the stalled rally, but a strong start to the season wasn't enough to excite investors. About 13% of S&P 500 companies have reported quarterly results so far. Blended first-quarter earnings growth, which combines estimates with actual results, was about 0.9%, according to FactSet data. Nevertheless, stocks continued to falter.
Adding to Wall Street's concerns are increasing tensions in the Middle East. Iran launched airstrikes on Israel over the weekend in retaliation for a suspected Israeli attack on its embassy compound in Syria earlier this month. In response, Israel carried out an attack inside Iran, a US official told CNN on Friday. Israel has not commented, while Iranian officials and state-affiliated media have so far tried to downplay the incident.
Oil prices initially rose sharply on reports of the attack on Iran, but reversed those gains as the limited nature of the action became clear.
Brent crude futures, the international benchmark, fell 0.4% to $86.80 a barrel at 6:45 a.m. ET, after rising more than 3% earlier. U.S. crude oil futures fell 0.3% to trade at $82.50, erasing earlier gains. Both contracts are down so far this month, but are still up about 15% year-to-date.
Investors are looking for safer havens instead of stocks. Gold futures have risen this month as traders seek protection from geopolitical unrest and persistent inflation. The most actively traded gold futures contract closed at $2,382.30 an ounce on Thursday.
Mortgage rates skyrocketed this week, breaching the key 7% threshold and widening America's home affordability crisis, my colleague Bryan Mena reports.
According to Freddie Mac data released Thursday, the 30-year fixed-rate mortgage averaged 7.10% in the week ended April 18, up from 6.88% the previous week. A year ago, the average 30-year fixed rate was 6.39%.
Exceeding 7% represents a psychological threshold that has not yet been exceeded this year.
Mortgage rates are rising due to expectations that the Federal Reserve will not cut rates any time soon. The Fed doesn't set mortgage rates directly, but its actions influence them, and persistently high inflation readings are keeping the Fed on hold.
“As interest rates trend higher, potential homebuyers are deciding whether to buy before rates rise even further or wait in hopes of cuts later in the year,” Freddie Mac chief economist Sam Khater said in a statement.
If inflation continues to ease or even worsen, mortgage rates could rise this year.
Read more here.
Apple plans to buy more components from Vietnam, underscoring the trend of global tech companies looking beyond China to secure their supply chains, cut costs and enter new markets, my colleague Anna Cooban reports.
According to a statement from the Vietnamese government, CEO Tim Cook made the promise during a meeting with Vietnamese Prime Minister Pham Minh Chinh in Hanoi on Tuesday.
Apple (AAPL) has already spent almost $16 billion on its supply chain in the country since 2019, the government quoted Cook as saying. And the company has created more than 200,000 jobs in Vietnam, it said.
According to the statement, Cook said Apple is “ready…to increase cooperation and investment activities” in the Southeast Asian country.
His visit underscores Vietnam's growing importance to global companies seeking alternatives to China as trade tensions between Beijing and the West have escalated in recent years.
Read more here.
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