The Economy Slows and Inflation Rises, Reducing Soft-Landing Bets – US Market Wrap

Wall Street was shaken by data that revealed exactly what investors did not want to hear: a sharp slowdown in the world’s largest economy and persistent inflationary pressures.

Treasuries fell, with yields reaching new 2024 highs as economic data revived the “stagflation” debate, adding uncertainty to the path of Federal Reserve policy. Swap traders pushed back the first rate cut to December. Equities also struggled, but recovered most of their losses thanks to a rally in two heavyweights: Nvidia and Tesla. Their rally counteracted a post-earnings drop in fellow megacap Meta Platforms.

The latest economic data ended a period of strong demand and low price pressures, which had fueled hopes for a “soft landing.” Gross domestic product rose at an annualised rate of 1.6%, falling short of all expectations. A closely watched measure of underlying inflation increased at a faster-than-expected 3.7% rate.

The S&P 500 fell to around 5,050, erasing this week’s gains. Meanwhile, 10-year yields increased six basis points to 4.70%. A $44 billion offering of seven-year notes was sold roughly in line with expectations.