Consumer Inflation Expectations Hit the Highest Since 2008 – US Market Wrap

Following a strong jobs report this year, traders reduced their bets on rate cuts by the Federal Reserve, which caused stocks to plummet and bond yields to rise in tandem with the dollar.

With the S&P 500 suffering its worst loss since December 18th, when the Fed alarmed markets by indicating caution about how quickly it can continue lowering rates, stocks erased their gains from 2025. Wall Street’s riskier areas saw a sell-off, with small caps down roughly 10% from their peak. 30-year yields briefly rose above 5% due to a decline in Treasuries. Less than 30 basis points of Fed cuts this year are currently priced into swaps.

A surprisingly strong year was concluded in December when the US economy added the most jobs since March and the unemployment rate unexpectedly dropped. Concerns regarding persistent price pressures were heightened by separate data, which showed that consumers’ longer-term inflation expectations had increased to their highest level since 2008. And a spike in oil prices only made people more anxious about that.

The S&P 500 fell 1.5%, close to its 100-day moving average. The Nasdaq 100 declined 1.6%. The Dow Jones Industrial Average fell 1.6%. A gauge of the “Magnificent Seven” megacaps dropped 1.2%. The Russell 2000 index of small firms fell 2.2%. The VIX, Wall Street’s favorite volatility gauge, rose to around 20.

The yield on 10-year Treasuries rose seven basis points to 4.76 percent. The dollar gained 0.5%.