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Everyone Needs to Get Their Macro Story Straight

Inflation concerns, encouraging employment data, and optimistic Fed remarks, have led to mixed market responses in stocks as well as crypto

Photo by Nicholas Cappello / Unsplash

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Yet another week of conflicting economic indicators and further setbacks for Wall Street investors trying to outsmart the Federal Reserve.

Investors experienced a setback as the S&P 500 and Treasuries saw a weekly gain for the first time in a month. This came after concerns about inflation led to a shift away from credit and cryptos and a decrease in focus on equities.

The improvement was fueled by encouraging employment data and optimistic remarks from Fed Chair Jerome Powell.

Investors who rely on economic statistics to predict the Fed's next interest rate move often lose money repeatedly.

Yields on two-year Treasuries surged past 5%, driven by a significant annual increase in a broad index of US labour costs. Yields experienced a further decline three days later following the release of the Labour Department's report on the lowest pay growth since 2021.

That mixed data fueled Bitcoin's wild swings last week while keeping the token in a broad range, as seen in recent weeks.

Based on Friday's jobs data, the bulls are in the driver's seat for the time being, but the markets have lost some of their lustre since traders booked some profits.

Stock Bulls Take Charge & How

Stocks soared as bond yields plummeted after traders saw a slowdown in the US labor market, which was a sign that the Fed might begin reducing rates as soon as September.

On Friday, stocks and cryptos recovered the week's losses, with equity markets getting a bigger bargain. The S&P 500 moved back about 5,100 points, a psychological win for the bulls.

Treasuries' two-year rates, more vulnerable to the Fed's impending movements, fell by 17 basis points before retracing their losses. For a fourth consecutive day, the dollar continued its decline.

Now, swap dealers are predicting a monetary easing of 50 basis points this year, the same as two rate cuts.

Speculation that the Fed would be able to cut rates this year sparked the greatest three-day rise in stocks since November on Monday, albeit in the last few trading hours.

After surpassing its 50-day average price, the S&P 500 gained 1%.

Many technical strategists consider this milestone crucial for sustaining the current sentiment. After a correction made certain parts of the market appealing, a strong earnings season kept optimism going.

The below-average trading volume questioned the advance's durability, but most industries managed to gain.

Over 80% of the firms in the S&P 500 have already announced their first-quarter earnings, and the increase in profits has well outpaced what was considered "mediocre expectations."

With S&P 500 companies reporting almost double the pre-season forecasts of 3.75%, the index is currently on track for a 6.5% profit gain.

However, due to rising rates, companies in the S&P 500 are unlikely to have double-digit earnings growth this year, so it's too early to give the recovery a thumbs-up.