Treasuries rebounded and stocks struggled at the end of a jittery week that saw investors positioning for a higher-for-longer Federal Reserve stance.
Ten-year yields dropped after briefly topping 4.5% for the first time since 2007. The S&P 500 notched its worst week since March.
Tech, which bore the brunt of the recent rout, outperformed. Apple climbed as its latest iPhones and watches went on sale.
A gauge of U.S.-listed Chinese shares rallied on news Washington and Beijing are forming working groups to discuss economic and financial issues.
Traders are still very concerned about inflation and the path of policy amid the recent oil rally and the Fed’s signal that rates are not going to come down any time soon, according to Fawad Razaqzada, a market analyst at City Index and Forex.com.
“It is far too early to say the markets have bottomed, as fundamentally nothing has changed,” Razaqzada noted.
Two Fed officials said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target.
While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required, cementing her position as one of the Federal Open Market Committee’s most hawkish members.
Fed Bank of San Francisco President Mary Daly said she is not ready to declare victory in the fight against inflation, and that the central bank is still committed to curbing price pressures “as gently as possible.”
The yield on 10-year Treasuries could reach 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to rates strategists at Bank of America.
Meantime, strategists at Goldman Sachs said the rates market pricing for about 75 basis points of Fed rate cuts in 2024 may persist “in the near term” based on soft economic data and the latest dot plot.
Investors dumped equities at the fastest pace since December as the prospect of higher-for-longer interest rates raises the risk of a recession, BofA strategists led by led by Michael Hartnett said.
Global equity funds had outflows of $16.9 billion in the week through Sept. 20, according to a note from the bank citing EPFR Global data.
U.S. stock funds led the exodus, while in Europe, redemptions reached 28 weeks.