The S&P 500 has extended its decline to 45 points, or 0.95%, and 4721. That’s a session low and comes with US 2-year yields up 14 bps on the day, erasing the decline from last Thurs/Fri.
Even with two days of declines, the losses in the S&P 500 have barely dented the rally that started in late October.
SPX daily
The market is trying to calibrate how much the Federal Reserve will be cutting this year. Current pricing is for 138 basis points this year, that’s down from 161 bps last week. The March meeting is now at 54%, down from 80%.
The number sound about right with falling inflation in the pipeline but most signs still pointing to a solid US economy. Today’s Atlanta Fed GDPNow estimate for Q4 was bumped up to 2.4% from 2.1% after strong retail sales.
The big question is whether the Fed will want to start taking out some insurance around economic weakness in H2 and in 2025 by trimming the Fed funds target from the current 5.25-5.50%. Richmond Fed President Barkin has talked about ‘toggling’ rates to a less-restrictive area and that alone could mean more than 100 bps in easing this year.
We may get some hints later today with the Beige Book due at the top of the hour and a speech from Williams at 3 pm ET. Yesterday, Waller laid out the case for cutting rates this year but didn’t seem to be in a rush to do it.