Yields hit two-week low after soft manufacturing data

Benchmark US Treasury yields fell to a two-week low on Monday after data showed that US manufacturing activity slowed for a second straight month in May, boosting expectations that a softening economy may allow the Federal Reserve to cut interest rates later this year.

Manufacturing weakened as new goods orders dropped by the most in nearly two years, while a measure of input inflation fell back from the highest since mid-2022.

US construction spending also fell unexpectedly for a second consecutive month in April on declines in non-residential activity.

“On the one hand, this (manufacturing data) is another survey that seems to show pessimism and weaker economic activity. On the other hand, these surveys aren’t as reliable as they used to be,” said Will Compernolle, macro strategist at FHN Financial in New York.

Compernolle noted that the data “comes on the back of slower personal spending that we saw last Friday and a host of other things that people are looking to for weaker economic activity.”

Traders are gauging when the Fed is likely to begin cutting interest rates as inflation remains above its 2% annual target.

Friday’s personal consumption expenditures (PCE) price index for April showed that price pressures stabilized in the month while consumer spending slowed, boosting bets that the Fed could cut rates as soon as September.

Benchmark 10-year note yields fell 11 basis points to 4.402%, and got as low as 4.392%, the lowest since May 17.

Two-year note yields fell 8 basis points to 4.818% and reached 4.814%, the lowest since May 20.

The inversion in the two-year, 10-year yield curve deepened 4 basis points to minus 42 basis points.

This week’s main US economic release will be jobs data for May due on Friday, with May’s consumer price inflation report on June 12 the next major focus.

Other jobs data this week will include the Job Openings and Labor Turnover Survey (JOLTS) report for April on Tuesday and the ADP National Employment report for May on Wednesday.

Next week’s inflation data will be critical for setting Fed expectations, and investors will be looking for further signs that inflation is easing following higher-than-expected readings in the first quarter.

The Fed will also update its economic and interest rate projections when it concludes its two-day meeting on June 12.

(Reporting by Karen Brettell; Editing by Tomasz Janowski and Will Dunham)

Oil hits four-month low as OPEC+ decision fails to allay demand worries

NEW YORK – Oil prices tumbled by USD 3 a barrel on Monday to their lowest in nearly four months, as investors worried that a complicated OPEC+ output decision could lead to higher supplies later in the year even though demand growth has been slow.

Brent crude futures fell by USD 2.75, or 3.4%, to settle at USD 78.36 a barrel, closing below USD 80 for the first time since Feb. 7. US West Texas Intermediate crude futures also closed at a near four-month low of USD 74.22 a barrel, down by USD 2.77 or 3.6% from Friday.

Both contracts were down by USD 3 a barrel in post-settlement trading.

OPEC+ on Sunday agreed to extend most of its oil output cuts into 2025 but left room for voluntary cuts from eight members to be gradually unwound from October onward.

Analysts at Goldman Sachs said the outcome was negative for oil prices as the phasing out of voluntary cuts shows a strong desire by several OPEC+ members to bring back output despite recent increases in global oil stocks.

“The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish OPEC expectations,” Goldman Sachs analysts said.

Other analysts also called the group’s decision incrementally bearish for oil prices in light of high interest rates and rising output from non-OPEC producers like the United States.

“Ultimately, a combination of factors has come into play,” independent oil analyst Gaurav Sharma said, highlighting disappointing economic indicators in the United States and China.

“When OPEC+ took the decision it did over the weekend, in a reasonably well-supplied crude market, traders factored in the macro picture alongside a dwindling risk premium (with talk of a ceasefire in Gaza) and went net short,” Sharma said.

An aide to the Israeli prime minister confirmed on Sunday that Israel had accepted a framework deal for winding down the Gaza war, although the Israeli side called it a flawed deal.

Signs of weakening demand growth have also weighed on oil prices in recent months, with data on US fuel consumption in focus.

The US government will release estimates of oil stocks and demand on Wednesday, which will show how much gasoline was consumed around the Memorial Day weekend, the start to the US driving season.

“The hard numbers are that the market is well-supplied,” said John Kilduff, partner at Again Capital.

“If we do not get a spectacular number on Memorial Day in the US, that’s going to be game over,” Kilduff added.

US gasoline futures RBc1 fell more than 3% on Monday to a more than three-month low of USD 2.34 a gallon.

US efforts to replenish the country’s Strategic Petroleum Reserve (SPR) could provide some support for oil prices. The United States is buying another 3 million barrels for the SPR at an average price of USD 77.69 a barrel, the US Department of Energy said on Monday.

(Reporting by Shariq Khan in New York, Natalie Grover in London, Mohi Narayan in New Delhi, and Emily Chow in Singapore; Editing by David Goodman, Kirsten Donovan, Sriraj Kalluvila, David Gregorio, Will Dunham, and Deepa Babington)

Wall Street ends slightly higher after soft manufacturing data, NYSE glitches

NEW YORK – S&P 500 and the Nasdaq edged higher in a choppy session on Monday amid soft manufacturing sector data and as a glitch on the NYSE briefly caused trading halts in dozens of equities.

A glitch at the New York Stock Exchange had triggered massive swings in the shares of Berkshire Hathaway and Barrick Gold. Trading in at least 60 NYSE-listed stocks was halted due to the volatility, before the bourse fixed the technical issue and activity resumed.

Benchmark S&P 500 and the Nasdaq finished higher after paring earlier losses on the sesson, while the Dow lost ground. Technology stocks were the biggest gainers, while energy equities were the biggest drag.

Markets had weighed data showing US manufacturing activity had slowed for the second straight month, raising concerns of weakening economic growth.

“It’s one of those days where people are waiting for the next catalyst with a choppy move after earnings,” said Keith Lerner, co-chief investment officer at Truist Advisory Services in Atlanta.

“There’s a bit of a tug of war between the market seeing weakening data and the expectation that the Fed may cut rates,” Lerner added.

Traders see a 59% chance that the Fed will begin cutting rates in September, up from about 53% before the ISM data was released, according to the CME’s FedWatch tool. Benchmark US 10-year note yields fell to a two-week low following the soft manufacturing data.

The Dow Jones Industrial Average fell 115.29 points, or 0.30%, to 38,571.03, the S&P 500 gained 5.89 points, or 0.11%, to 5,283.40 and the Nasdaq Composite gained 93.66 points, or 0.56%, to 16,828.67.

Nvidia rose 4.9% after CEO Jensen Huang revealed that the company’s next-generation AI chip platform would be rolled out in 2026.

Shares of other megacaps, including Apple, Amazon, Alphabet, and Meta closed higher. Microsoft and Tesla finished lower.

GameStop soared 21% after a weekend Reddit post from stocks influencer Keith Gill, also known as “Roaring Kitty”, showed a USD 116 million bet on the gaming retailer.

Investors will be eyeing a data-packed week that includes surveys on the services sector, factory orders, and Friday’s closely watched nonfarm payrolls report, which could provide clues to the Fed’s likely course of action with regards to rates.

Advancing issues outnumbered decliners by a 1.03-to-1 ratio on the NYSE. On the Nasdaq, 2,146 stocks rose and 2,171 fell as declining issues outnumbered advancers by a 1.01-to-1 ratio.

The S&P 500 posted 25 new 52-week highs and 3 new lows while the Nasdaq Composite recorded 68 new highs and 101 new lows.

The total volume of shares traded across US exchanges was about 11.5 billion shares, compared with the 12.6 billion average over the last 20 trading days.

(Reporting by Chibuike Oguh in New York; additional reporting by Lisa Mattackal and Johann M Cherian in Bengaluru; Editing by Pooja Desai and Aurora Ellis)

Growth fears mount, ‘bad news is bad news’?

Asian markets could be in for a choppy ride on Tuesday, with investors unsure whether to interpret Monday’s steep fall in US Treasury yields and the dollar as an encouraging sign for risky assets or a warning that growth is evaporating.

Given that Asian shares on Monday posted their biggest rise this year, before the weak ISM US manufacturing report triggered the slide in yields, investors may err on the side of caution and pare back risk exposure, not add to it.

If so, it will suggest the ‘bad news is bad news’ narrative is taking hold – easing financial conditions on their own are not enough to lift asset prices; instead, the deteriorating macro conditions driving down yields and the dollar are what’s important for asset prices.

By some measures, a shift in the US economic outlook is already underway. The Atlanta Fed on Monday slashed its GDPNow model forecast for second quarter growth to 1.8% from 2.7%. Two weeks ago it was 3.5%, and three weeks ago it was over 4.00%.

The sugar high of rate cut expectations can only last so long. And in truth, rate cut expectations have not shifted all that much lately because inflation remains stickier than policymakers would like.

The US growth engine is particularly important for Asia right now because China’s post-lockdown recovery is so fragile, and uncertainty persists around Japan’s policy normalization, rising bond yields, and record weak currency.

That’s the backdrop to Asian markets on Tuesday which also sees the release of manufacturing PMI data from Malaysia and Thailand, South Korean inflation, and the official results from India’s general election.

Indian markets’ initial reaction on Monday to the weekend’s exit polls showing a decisive mandate and third term for Prime Minister Narendra Modi was overwhelmingly positive – shares hit lifetime highs, the rupee gained and bond yields dropped.

The broader Nifty index closed 3.25% higher at 23,263.90 points after touching a record high 23,338.70 earlier in the day, while the BSE index closed up 3.39% at 76,468.78 points, just off its lifetime peak of 76,738.89 also touched earlier.

India’s boom helped drive the continent’s stocks higher. The MSCI Asia Pacific ex-Japan index snapped a four-day losing streak, surging more than 2% for its best day since November.

Surprisingly strong factory activity from China, and to a lesser extent South Korea and Taiwan, also helped. China’s ‘unofficial’ Caixin/S&P Global manufacturing PMI report showed the fastest pace of growth since June 2022, contrasting with an official survey on Friday that showed a surprise fall in activity.

The Caixin survey is believed to be skewed more toward smaller, export-oriented firms, which may help explain why Asian stocks took off so much on Monday. Some of that optimism, however, may cool on Tuesday.

Here are key developments that could provide more direction to markets on Tuesday:

– South Korea inflation (May)

– India election results

– Australia current account (Q1)

(Reporting by Jamie McGeever; Editing by Josie Kao)

US equity funds hit by outflows on rising yields, rates uncertainty

US equity funds saw outflows for the first time four weeks in the seven days ended May 29, hit by rising bond yields and uncertainty over the timing and extent of Federal Reserve interest rate cuts.

According to LSEG Lipper data, net outflows from US equity funds totaled USD 7.6 billion. This came as the yield on the 10-year US Treasury note reached a four-week high, following a survey that unexpectedly showed an improvement in consumer confidence in May.

During the week, financials and consumer discretionary sector funds recorded net outflows of USD 779.8 million and USD 379.3 million respectively. At the same time, industrials and tech sector funds each attracted over USD 200 million in net inflows.

Meanwhile, US bond funds saw their first weekly net outflow of the year, driven by persistent inflation concerns and hawkish central bank rhetoric, which scaled back expectations for rate cuts to just one by the end of the year – significantly lower than the up to six anticipated at the start of 2024.

However, US Treasury yields fell on Friday after data showed US inflation stabilized in April, in line with expectations, suggesting the Fed’s rate cut plans later this year remained intact.

During the week, US high-yield and inflation-linked bond funds saw net outflows of USD 376 million and USD 254.2 million respectively, while loan participation funds saw net inflows of USD 386 million.

US money market funds also recorded their first net outflow in six weeks, totaling USD 2.3 billion.

(Reporting by Patturaja Murugaboopathy in Bengaluru; Editing by Mark Potter)

Dollar slides after US inflation meets expectations in April

NEW YORK/LONDON – The dollar was lower and on track for its first monthly decline in 2024 after data showed that US inflation rose in line with expectations in April.

The personal consumption expenditures (PCE) price index increased 0.3% last month, the Commerce Department’s Bureau of Economic Analysis said on Friday, matching the unrevised gain in March. The data suggests the elevated pace of price increases could last longer than expected and offers little clarity on how soon the US Federal Reserve will be able to cut interest rates.

“These numbers do not give any sense that the Fed is achieving its goal,” said Joseph Trevisani, senior analyst at FX Street. “It’s already stated what its goal is, so the markets are willing to give it some time … but that time I do not think is unlimited.”

The US dollar index was last down 0.39% at 104.36.

The Fed has raised borrowing costs by 525 basis points since March 2022 in a bid to cool demand across the economy. Financial markets initially expected the first rate cut to come in March, which then got pushed back to June and now to September.

Official data showed on Thursday the US economy grew at an annualized rate of 1.3% from January through March, down from the previous estimate of 1.6% after downward revisions to consumer spending.

Although inflation is “moving in the right direction,” said Kyle Chapman, FX markets analyst at Ballinger Group, “policymakers are definitely not out of the woods yet.”

“I would caution against overinterpreting a single month’s data,” he said.

EURO ZONE INFLATION

The euro edged up after data showed price pressures in the eurozone picked up faster than expected in May, complicating the outlook for the European Central Bank.

The euro was up 0.41% to USD 1.0876. The French inflation data released earlier on Friday, and German and Spanish figures earlier this week, all came in slightly higher than expected.

The numbers have not altered the view in markets that the ECB will cut rates when it meets next week.

According to all 82 economists polled by Reuters, an ECB rate cut on June 6 appears certain, with a majority predicting further reductions in September and December.

Elsewhere, the yen JPY=EBS strengthened, leaving the dollar down 0.15% at 156.58, but off this week’s four-week high as Japan’s finance minister repeated warnings about excessive currency volatility.

The Ministry of Finance released data on Friday confirming that Japanese authorities spent 9.79 trillion yen (USD 62.2 billion) intervening in the foreign exchange market to support the yen over the past month, in moves that kept the currency from testing new lows but are unlikely to reverse a longer-term decline.

Data on Friday showed core consumer inflation in Tokyo accelerated in May, but price growth excluding the effect of fuel eased, heightening uncertainty over the timing of the Bank of Japan’s next rate hike.

The offshore Chinese yuan was broadly steady versus the dollar at 7.2594 after an official factory survey showed China’s manufacturing activity unexpectedly fell in May.

(Reporting by Hannah Lang in New York and Joice Alves; additional reporting by Brigid Riley; Editing by Kirsten Donovan)

Struggling Dow transport stocks could be economic warning signal

NEW YORK – It’s been a banner year for the major US stock indexes, but one economically sensitive corner of the market sticks out as a sore spot.

The Dow Jones Transportation Average has fallen about 5% so far this year, a significant contrast with the 9% year-to-date rise for the benchmark S&P 500 and the 1% rise in the Dow Jones Industrial Average, which topped 40,000 points for the first time this month.

While major indexes including the S&P 500, the Nasdaq Composite, and the Dow have all set new all-time highs this year, the Dow transports have yet to top their November 2021 record, and are some 12% below that level.

Some investors said the struggles for the 20-stock transport index – which includes railroad operators, airlines, package shipping companies, and trucking firms – could signal weakness in the economy or prevent the broader market from making significant further gains unless they bounce back.

The Dow transports are “a barometer for future economic activity,” said Chuck Carlson, chief executive officer at Horizon Investment Services. “They may be indicating that while a recession isn’t imminent, there is probably a slowdown in the economy that’s ahead here.”

The weakness in the transports is an example of how gains in the tech-led S&P 500 – propelled by megacap stocks such as semiconductor giant Nvidia – may be overshadowing weaker performance in other corners of the economy following the Federal Reserve’s most aggressive monetary policy tightening in decades.

Other areas that have struggled include small-cap stocks, which some analysts believe are more sensitive to economic growth than large caps, as well as real estate shares and some high-profile consumer stocks such as Nike, McDonald’s, and Starbucks.

Data this week showed the US economy grew at a 1.3% annualized rate in the first quarter, down from the 3.4% fourth-quarter 2023 pace. A key test for the economy’s strength and for markets comes with the June 7 release of the monthly US jobs report.

Among the Dow transports, the biggest year-to-date laggards are car rental company Avis Budget, off 37%, trucking firm J.B. Hunt Transport, down 21%, and American Airlines, off 17%.

Shares of major package shipping companies UPS and FedEx, are down 13% and 1% respectively, while rails Union Pacific and Norfolk Southern have both slumped about 7%. Only four of the 20 components have outperformed the S&P 500 so far this year.

Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, said it could be harder for the broader market to break significantly higher unless the transports pick up steam.

“There is something to be said about the guts of the market not necessarily confirming all-time highs in the overall S&P 500,” Miskin said. “So softness in some of the transports, I think do warrant some caution.”

Stocks have pulled back this week, with the S&P 500 down more than 2% from a record high set earlier in May, with rising bond yields causing concern about equity performance.

Not all investors believe the transport index is reflective of the broader economy. The index is price-weighted, like the Dow industrials – as opposed to weighted by market value like many indexes – and includes only 20 stocks.

Meanwhile, another group also considered to be an economic bellwether – semiconductors – has fared much better.

The Philadelphia SE semiconductor index has gained 20% this year, as investors flock to Nvidia and other chip companies poised to capitalize on excitement over the business potential of artificial intelligence.

The overall market trend remains bullish for Horizon’s Carlson, who tracks the Dow transports and Dow industrials together to determine market trends, known as “Dow Theory.”

But the fact that the transports closed at their lowest point since November on Wednesday is worrisome, he said.

“It’s not to say that the industrials and the broad market can’t continue to move higher,” Carlson said. “But the probability of doing it in a sustained way, I think, decreases with the transports making new intermediate lows.”

(Reporting by Lewis Krauskopf; editing by Ira Iosebashvili, Kirsten Donovan)

Gold posts fourth monthly rise on Fed rate cut hopes

Gold prices eased on Friday as investors digested the US inflation report that was largely in line with estimates, although expectations that the Federal Reserve will cut interest rates this year kept bullion on track for its fourth straight monthly gain.

Spot gold gave up earlier gains to trade down 0.7% at USD 2,326.90 per ounce as of 1:50 p.m. ET (1750 GMT). US gold futures settled 0.9% lower at USD 2,345.8.

However, bullion was up 1.8% for the month. On May 20, prices hit an all-time high of USD 2,449.89.

“Gold is down despite the friendly PCE report and softer consumer spending, which could suggest near-term exhaustion in what has been a remarkable rally in 2024,” said Tai Wong, a New York-based independent metals trader.

Data showed the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in April, in line with forecasts by economists polled by Reuters. In the 12 months through March, PCE inflation gained 2.7% as expected.

“Multiple Fed governors have said that it will take a few months of softer inflation to convince them it’s safe to cut rates. A September rate move remains close to a coin-flip, though odds will increase slightly after today,” Wong said.

Traders on Friday added to bets the Fed would deliver a first rate cut in September after a US Commerce Department report showed inflation may have made a little progress toward the Fed’s 2% goal last month.

Dallas Fed Bank President Lorie Logan said on Thursday she believes inflation is still heading to the Fed’s 2% target, but noted that it is too early to consider cutting interest rates.

While gold is often considered a safeguard against inflation, higher rates increase the opportunity cost of holding the non-yielding asset.

Elsewhere, spot silver dropped 2.7% to USD 30.34 per ounce, but logged its biggest monthly gain since November 2022.

Platinum climbed 1.4% to USD 1,038.25, and palladium slipped 4% to USD 909.71.

(Reporting by Brijesh Patel in Bengaluru; Editing by Vijay Kishore and Alan Barona)

US yields drop as receding inflation keeps Fed cuts intact this year

NEW YORK – US Treasury yields fell on Friday after data showed US inflation stabilized in April, in line with expectations, suggesting the Federal Reserve’s interest rate cut plans later this year remained intact.

Analysts said though the Fed will rely on several months of data showing inflation is firmly decreasing before starting the easing cycle.

The personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, rose 0.3% last month, data showed, matching the unrevised gain in March. Monthly inflation readings of 0.2% over time are needed to bring inflation back to target.

In the 12 months to April, the PCE price index rose 2.7% after climbing by the same percentage in March. Economists polled by Reuters had forecast it would climb 0.3% on the month and 2.7% on a year-on-year basis.

“It’s nice to see core PCE not re-accelerating further from the hotter-than-expected numbers that we saw earlier in the year,” said JoAnne Bianco, investment strategist and partner at BondBloxx Investment Management, which manages 24 fixed income exchange-traded funds totaling about USD 3 billion.

“That’s a step in the right direction,” Chicago-based Bianco said, adding though that it was not enough.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased by 0.2%, but down from a downwardly revised 0.7% rise in March.

The benchmark 10-year yield slid 4.6 basis points (bps) to 4.508% after the data. On the month, the 10-year yield declined 17.6 bps, on track for its worst monthly drop since December.

US 30-year yields were down 3.4 bps at 4.651%, sliding 13.8 bps in May, the largest monthly fall since December as well.

On the front end of the curve, the two-year yield, which reflects the US rate move expectations, slipped 1.7 bps to 4.912%. For the month, two-year yields were down 15.9 bps, again the biggest monthly drop since December.

In addition, the Chicago purchasing managers’ index (PMI), a barometer of business activity in the US Midwest, came in at 35.4 vs a 41.0 estimate. May’s reading was the lowest in four years.

The Chicago PMI data further pushed Treasury yields lower.

After the PCE and Chicago PMI reports, fed funds futures slightly increased the chances of a rate cut in September to around 55.3%, according to LSEG’s rate probability app. It was slightly below 50% earlier this week.

The futures market is still pricing in just one rate cut of 25 bps this year.

“This one PCE reading is meaningless. It won’t change Fed Chair (Jerome) Powell’s stance at the upcoming meeting. The up and down of the monthly inflation readings lends to caution,” wrote Gregory Faranello, head of US rates at AmeriVet Securities, in a research note.

“It’s completely fair and honest to admit the Fed’s not even sure. And the recent interviews, q/a (question and answer), and speeches lend themselves to that. A lot remains out of the hands of central bank policy in our view.”

The US yield curve, meanwhile, marginally reduced its inversion on Friday. The spread between US two- and 10-year yields, widely viewed as a predictor of economic recessions, was at minus 37.9 bps, compared with minus 38.3 bps late on Thursday. The inversion went as deep as minus 41 bps following the Chicago PMI report.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Josie Kao and Jonathan Oatis)

‘Bothersome’ rebound in US yields casts shadow on stocks at record highs

NEW YORK – Treasury yields are on the rise again, presenting a potential obstacle to a US stock rally that has taken major indexes to record highs.

The benchmark 10-year Treasury yield, which moves inversely to bond prices, hit nearly 4.64% this week, its highest level in about a month. It was at 4.55% late on Thursday.

The interplay between stocks and yields has been a key dynamic in markets this year. A sharp rise in yields sent equities tumbling last month, though they came roaring back when data showed cooling inflation and the Federal Reserve suggested it was unlikely to raise interest rates again to tamp down consumer prices. The S&P 500 is up about 10% year to date.

Yet some investors see reasons for yields to keep rising. US growth remains strong, stoking worries the Fed could spark an inflationary rebound if it eases monetary policy too early. One key test comes with Friday’s release of the personal consumption expenditures price index (PCE), which the Fed tracks to determine the pace of inflation.

Persistent concerns about the mounting US fiscal deficit and weak Treasury auctions have also kept yields elevated, as an expected deluge of government debt around the world is set to test investors’ appetite in June.

Robert Pavlik, senior portfolio manager at Dakota Wealth, believes stocks could become more turbulent if the 10-year Treasury yield hits the 4.7% touched last month. So far, the S&P 500 has slipped just over 1% from its record closing high set in May.

At the moment, rising yields are “bothersome, not troubling,” Pavlik said. “If we move higher than (4.7%), then it’s more of a concern that it’s going to have a bigger impact on earnings and potential growth going forward.”

Higher yields translate to higher borrowing rates for consumers and businesses, which could weigh on the economy and companies’ bottom lines.

Elevated yields also pose greater investment competition for stocks, as Treasuries are seen as far less risky because they are backed by the US government.

“If you can earn around 5% in an instrument with a lot lower volatility relative to equities, that should make sense to a lot of investors at these levels,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

The WFII recommends investors overweight bonds versus stocks, and is targeting the S&P 500 to end 2024 in a range of 5,100 to 5,300. The index was last at 5,235.48.

The rise in bond yields also could limit the valuation stocks are able to reach, Samana said. The S&P 500 was trading at a price-to-earnings ratio of 20.6, based on analysts’ profit estimates for the next 12 months, according to LSEG Datastream. That is well above the historic average of 15.7.

Other measures also suggest stocks are becoming less attractive.

The equity risk premium, which compares the S&P 500 earnings yield against the 10-year Treasury yield, is around its lowest level since mid-2002, said Keith Lerner, co-chief investment officer at Truist Advisory Services.

“Rising Treasury yields have certainly created more headwinds for the stock market recently,” Matt Maley, chief market strategist at Miller Tabak, said in a note on Thursday.

Fed policymakers have urged patience on rate cuts, saying they need to see several months of data to be sure inflation is heading back down to the central bank’s 2% target. Futures that track the fed funds rate show investors pricing in just 35 basis points of rate cuts this year, according to LSEG data, from more than 150 basis points priced in January.

Some factors that have driven rates higher, such as a robust US economy, can also support stocks. One demonstration of the economy’s strength came as companies reported earnings in recent weeks: S&P 500 earnings were on track to have climbed 8% in the first quarter from a year earlier, according to LSEG IBES.

That is one reason why Tony Roth, chief investment officer at Wilmington Trust, believes the rise in yields has not been “particularly conclusive” for equities so far.

But persistently strong inflation could be problematic, Roth said. “That starts to present a risk for equities and points to higher yields for a much longer period of time.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Richard Chang)

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