Sep 20, 2023

The US30 index is under pressure as ten-year bond yields climb in anticipation of the Federal Open Market Committee’s (FOMC) rate hike decision.

US30: Daily Chart

The Dow Jones Industrial Average (US30) is currently trading at 34,559. There is a possibility that it may test the August lows of 34,000 this week.

Treasury yields went up on Monday, thanks to strong economic data from the previous week and the Federal Reserve’s policy decision coming up on Wednesday. Recent economic indicators, like firm inflation readings, solid retail sales, and rising oil prices, have pushed the 10-year Treasury yield to its highest level since the financial crisis of 2007-2008.

According to the CME FedWatch Tool, the market is heavily anticipating a pause in the Federal Open Market Committee’s (FOMC) rate hike cycle this week. However, the odds of a 25 basis point rate hike to a range of 5.50% to 5.75% at the subsequent meeting in November are now only 28.7%. This could set the stage for disappointment in the stock market in the coming weeks.

BofA Securities analysts Michael Gapen, Mark Cabana, and Alex Cohen have predicted that the Federal Reserve will not alter its balance sheet policies or raise interest rates at its September meeting. They base their prediction on recent comments by Fed policymakers and market pricing.

On Monday, it was also reported that a sentiment index for US home builders dropped in September, falling below the breakeven level. Traders expect that some recent economic weakness could force the central bank to pause its interest rate hikes.

On Monday, US Treasury Secretary Janet Yellen stated that she did not see any evidence that the US economy was heading into a recession, but warned that a failure by Congress to pass legislation to keep the government running would risk slowing economic momentum.

“I don’t see any signs that the economy is at risk of a downturn,” Yellen told CNBC.

“There’s absolutely no reason for a shutdown,” she said. “Creating a situation that could cause a loss of momentum is something we don’t need as a risk at this point.”

The market is fully expecting the Federal Reserve to pause its rate-hiking cycle on Wednesday, and any change in that outlook would likely rattle stocks.

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