US Equity Markets Close the Week on a Quiet Note Amid Rising Stagflation Worries

US Equity Markets Show Little Movement

On Friday afternoon, the primary US equity indices displayed minor changes, with the S&P 500 set for a 2% weekly increase. This comes as investors grapple with the dual concerns of a decelerating economy and high inflation, reigniting stagflation worries.

Treasury Yields Rise Amid Inflation Concerns

During the trading session, Treasury yields saw an uptick due to persistent inflationary pressures. This complicates the plans of Federal Reserve Chairman Jerome Powell to reduce interest rates later in the year. Despite the conclusion of most of the earnings season, the sustained strength of Corporate America is a positive aspect. However, there are increasing indications that low-income consumers are beginning to struggle.

Consumer Confidence Survey Indicates Economic Trouble

The most significant macro news of the session was the consumer confidence survey from the University of Michigan, which suggested a collapse in Bidenomics. The report was extremely disappointing, with the index unexpectedly falling from 77.2 to 67.4, a 9.8-point decrease, the largest since August 2021. This was not only a significant miss from the expected 76.2, but it also represented the largest miss on record.

US Equity Indices React to Consumer Confidence Report

Following the release of the consumer confidence report at 10:00 AM ET, US equity indices surrendered most of their gains and fell, trading sideways in the afternoon.

Russel 2000 Takes the Biggest Hit

Among the primary US equity indices, the Russel 2000 experienced the largest loss in the session, primarily due to economic weakness.

Sector Performance in the S&P500

There was little notable sector performance across the S&P500, with tech slightly up and energy down by half a percent.

Treasury Yields Continue to Rise

Stubborn inflationary pressures led to an extension in Treasury yields following the report, reminding traders of the higher-for-longer theme. 2-year yields reached weekly highs, while Fed-dated OIS adjusted to exclude rate cut expectations for this year.

Stagflationary Warning Poses New Challenge

The stagflationary warning issued today poses a new challenge to the Federal Reserve's interest rate-cutting cycle. Fed swaps for '24 immediately dropped from 1.77 cuts to around 1.63 cuts by late afternoon.

Expectations for Next Week

Next week is expected to be filled with macro data points, including the release of CPI, PPI, retail sales, and industrial production in the US.

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