Wall Street was thrown into turmoil as new data revealed a troubling slowdown in the world’s largest economy and persistent inflation, sparking fears of stagflation. Treasuries sold off, with yields reaching new highs for 2024, causing uncertainty around Federal Reserve policy. Swap traders delayed the first rate cut to December, and equities struggled but managed to recover some losses thanks to gains in Nvidia Corp. and Tesla Inc.
The latest economic figures shattered hopes for a “soft landing,” with GDP growth coming in at a disappointing 1.6% annualized rate and underlying inflation rising more than expected at 3.7%. Chris Zaccarelli of Independent Advisor Alliance described the report as the “worst of both worlds,” with slowing economic growth and persistent inflationary pressures.
The S&P 500 dropped to around 5,050, and ten-year yields rose to 4.70%. Bill Gross, co-founder of Pacific Investment Management Co., lamented the rise in Treasury yields and advised investors to stick to value stocks and avoid tech for the time being.
Market experts like Howard Lutnick of Cantor Fitzgerald and Krishna Guha of Evercore anticipate a recalibration of Fed policy in response to the latest economic data. The combination of slower growth and stubborn inflation has raised concerns about potential stagflation risks, complicating the Fed’s decision-making process.
Overall, the economic outlook remains uncertain, with traders closely watching Fed Chair Jerome Powell’s upcoming comments for clues on future policy direction. The debate around rate cuts or increases continues to fuel market volatility, with investors bracing for further challenges ahead.