Wall Street maintains recovery, but heads for its worst month of the year

The S&P 500 upload this Thursday a 0.3%, but is still on track for its worst month of the year. The index Dow Jones also climbs 0.3% while the composite index Nasdaq it does so by 0.2%.

Stocks fell sharply this month, as Wall Street increasingly accepts a new normal in which interest rates will remain high for some time. The Federal Reserve has already placed its main interest rate at the highest level since 2001, hoping to extinguish inflationand indicated last week that could cut rates less next year than expected.

This is a sharp change compared to previous years of investmentin which Wall Street was counting on the Federal Reserve to cut rates quickly and abruptly when things got ugly. High rates slow the economy and hurt stock prices and other investments.

The threat of higher and longer rates drove up bond yields. Treasury bond in the fixed income market, which have reached levels never seen in more than a decade. The yield on the 10-year Treasury bond rose to 4.67% from 4.61% on Wednesday. In May it was around 3.5% and at the beginning of the pandemic it was barely 0.50%.

The two-year Treasury yield, that moves more depending on the expectations of the Federal Reserve’s actionsfell to 5.10% from 5.14%.

Yields moved after the latest set of reports on the economy. According to one of them, Last week fewer workers applied for unemployment benefits than economists expected.

Wall Street: the data that hits the stock market

The labor market has remained surprisingly strong despite much higher interest rates and has helped fuel strong household spending. This has been one of the main reasons why the economy has been able to avoid a long-predicted recessionbut it may also be putting upward pressure on inflation.

According to another report, The US economy grew at an annual rate of 2.1% during the summer, after some revisions to previous estimates. This figure was slightly below economists’ expectations, but it appears that economic growth has remained strong at least through the third quarter. The question is how the trend will continue in the last three months of the year.

Taken together, the reports They did nothing to change investors’ minds about the possibility of the Fed holding firm on interest rates.something that Wall Street describes as a “hawkish” stance on monetary policy.

“The waiting game continues,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

“Until there is a clear break from this pattern, investors will live with a hawkish Federal Reserve.”higher interest rates for longer and probably more volatility in the markets,” he said.

In addition to the threat of higher and longer interest rates, other challenges loom over the economy and Wall Street. The most immediateOr is it the threat of a new US government shutdown this weekend?although the financial markets have resisted quite a bit well the previous closures.