Will the Fed's hawkish stance impact the US stock market? DataTrek: "Higher for longer" is no longer a threat to the rise of US stocks
DataTrek analysts Nicholas and Jessica Rabe stated that the Federal Reserve's "Higher for longer" policy no longer poses a threat to further gains in the U.S. stock market. Although the market is concerned that the Federal Reserve may reimplement this policy, analysts believe that U.S. stocks may face downward pressure, primarily depending on the trend of U.S. Treasury yields. Data shows that the S&P 500 has still risen 50% in a high-yield environment, indicating that the market's sensitivity to Federal Reserve policies has not affected stock market performance
According to the Zhitong Finance APP, DataTrek analysts Nicholas and Jessica Rabe posted on the X platform stating that "Higher for longer" no longer poses a threat to further gains in the U.S. stock market.
It is understood that the Federal Reserve's latest dot plot indicates that the rate cuts in 2025 will be smaller, raising concerns in the market that the Federal Reserve will re-adopt the "Higher for longer" policy stance. In response, analysts believe that U.S. stocks may face some pullback and volatility pressure, depending on whether U.S. Treasury yields continue to rise.
Data shows that the yield on the U.S. two-year Treasury bond has remained stable at high levels for about two years, hovering between 3.5% and 5%, currently at 4.36%, having risen 2.56% so far this year.
DataTrek analysts pointed out that this is the part of the yield curve most sensitive to market views on the Federal Reserve's future policies. However, the S&P 500 index has risen 50% during this period. This means that "Higher for longer" will not pose a threat to further gains in the U.S. stock market.
It is understood that in 2022, the two-year U.S. Treasury bond rose 363 basis points to 4.41%, while the S&P 500 index fell 18.4%, the MSCI Europe index fell 18.3%, the MSCI Japan index fell 18.7%, and the emerging markets index fell 22.4%.
In 2023, the two-year U.S. Treasury bond fell 18 basis points to 4.23%, while the S&P 500 index rose 24.2%, the MSCI Europe index rose 15.8%, the MSCI Japan index rose 17.8%, and the emerging markets index rose 6.1%.
As of 2024, the two-year U.S. Treasury bond has risen 9 basis points to 4.32%, while the S&P 500 index has risen 24.4%, the MSCI Europe index has fallen 2.1%, the MSCI Japan index has risen 3.2%, and the emerging markets index has risen 5.1%