Bond Yields Surge as Fed Signals No Rate Cuts Until September – What’s Next for Markets?
- Why Did Bond Markets Throw a Tantrum After the Jobs Report?
- How Did Stocks Defy Gravity Amid Rate Fears?
- What’s the Wildcard in This Rally?
- Could This Be the Calm Before the Storm?
- FAQ: Your Burning Questions Answered
In a twist that caught Wall Street off guard, June’s blockbuster jobs report (147K new non-farm payrolls vs. 110K expected) flipped the script on rate-cut hopes, sending bond yields soaring and stocks rallying. The Dow jumped 381 points as traders priced in a delayed Fed pivot, while the Russell 2000’s 24% rebound since April proved the bull run isn’t just for megacaps. With Trump’s trade war timeout expiring and tax reform advancing, markets are bracing for fireworks post-Independence Day. ---
Why Did Bond Markets Throw a Tantrum After the Jobs Report?
The Labor Department’s June jobs data was a gut punch to rate-cut doves. Employers added 147,000 positions – smashing forecasts and May’s revised 144,000 – while unemployment dipped to 4.1% against expectations of a rise. This economic adrenaline shot sent Treasury yields spiking as CME’s FedWatch tool showed a 95% chance of no July rate cut. "The market’s doing a 180," noted a BTCC analyst. "Traders are now betting the Fed holds firm till September at least, maybe longer if this hiring spree continues." The 10-year yield climbed 12 basis points intraday, its sharpest jump since March, as hedge funds scrambled to cover short positions.
How Did Stocks Defy Gravity Amid Rate Fears?
Counterintuitively, the S&P 500 gained 0.8% despite the hawkish shift, with the Nasdaq (+1%) and Dow (+0.9%) joining the party. Why? Three factors: 1. Earnings Resilience : Banks like JPMorgan and Goldman Sachs hit all-time highs, benefiting from wider spreads. 2. Sector Rotation : Tech (Nvidia, Oracle) and cruise lines (Royal Caribbean’s best close since 1993) led gains. 3. Short Squeeze : Bearish traders got steamrolled – 36 S&P stocks hit 52-week highs, 25 setting lifetime records. "Everyone expected a ‘bad news is good news’ reaction," quipped a floor trader. "Instead, we got ‘great news is still great news’ – for now."
What’s the Wildcard in This Rally?
Politics. With Trump’s 90-day tariff truce ending next week, Vietnam trade deals and tax bill progress are fueling volatility. The Senate-passed tax overhaul could slash corporate rates by fall, but fresh tariffs might offset gains. "It’s like watching a NASCAR race with two pit crews working against each other," joked an AMEX options trader. The Russell 2000’s 0.6% Thursday gain pushed it into yearly positive territory, showing small caps are betting on domestic growth trumping trade wars.
Could This Be the Calm Before the Storm?
Thursday’s early market close (1 PM ET for Independence Day) masked brewing tensions. ADP’s earlier report of 33,000 job losses had sparked recession fears, making June’s rebound even more jarring. "The bond market’s screaming ‘inflation,’ but stocks are pricing in soft landing," observed a Morgan Stanley strategist. Key levels to watch: - 10-Year Yield : A break above 4.5% could spook equities - VIX : Still subdued at 12.3, suggesting complacency - Fed Speakers : Any post-holiday hints could swing markets
FAQ: Your Burning Questions Answered
Why did bond yields rise so sharply?
Strong jobs data reduced odds of imminent Fed rate cuts, making existing bonds less attractive. Yields MOVE inversely to prices.
Which stocks benefited most from the rally?
Financials (JPMorgan, GS), tech (NVDA), and consumer discretionary (Royal Caribbean) led the charge, per TradingView data.
Does this change the 2024 rate-cut outlook?
CME futures now price just 1-2 cuts by December vs. 3-4 expected in May. September is the new consensus pivot month.
