US Services PMI at a 4-Month High & Prices Increase – US Market Wrap

Wall Street traders sold bonds and stocks, with strong economic data supporting the view that the Federal Reserve isn’t ready to declare victory over inflation yet.

Treasuries came under renewed pressure on speculation that disinflationary expectations had been overstated. In another sign that the world’s largest economy is still on solid ground, the Institute for Supply Management’s services index reached a four-month high while prices rose. The news jolted trading on a day when investors were already digesting cautious statements from Fed speakers, including Jerome Powell.

US 10-year yields increased 14 basis points to 4.16%, while those on two-year notes approached 4.5%. Fed swaps have nearly eliminated the possibility of a March rate hike, and the likelihood of a May cut has also decreased. The dollar reached its peak from November. The S&P 500 fell from a record high, but it remained well above session lows as Nvidia led gains among chipmakers.

Traders also waded through Fed speaker remarks, with Powell reiterating in a Thursday interview with CBS’s 60 Minutes that aired Sunday evening that policymakers will most likely wait until after March to cut rates. Fed Bank of Minneapolis President Neel Kashkari said officials have time to assess incoming data before easing, while his Chicago counterpart Austan Goolsbee reiterated his desire to see more positive inflation data.

The ISM’s overall service index rose to 53.4 last month. The index has remained above the 50 level, indicating expansion, for a year. The most recent reading outperformed all estimates in a survey of economists. The group’s metric for material prices increased, indicating that costs are rising faster.