US stock markets edged higher on Wednesday as investors digested the opaque messages from policymakers on the path to the recession of the crisis.
Wall Street’s blue chip S&P 500 index rose 0.2% at the close, while the technology-focused Nasdaq Composite rose 0.6%. The pan-continental European Stoxx 600 index ended the day flat.
“We’re talking about tapering,” said Mary Daly, president of the San Francisco Fed. told CNBC Tuesday night, referring to the U.S. central bank’s $ 120 billion monthly asset purchase program put in place in March 2020 to lower borrowing costs and avoid an economic depression.
“But I want to make sure everyone knows it’s not about doing something new,” she added, in comments that echoed an earlier statement by the vice president of the Fed, Richard Clarida.
Randal Quarles, also vice chairman of the Fed, continued on Wednesday, saying he believed that even after “discounting temporary factors”, the rise in US inflation since December “would prove sufficient” to deserve a cut. asset purchases later in 2021.
Arnab Das, global market strategist at Invesco, said that “if the Fed is too strident about [market] temper tantrum, whereas if they are accommodating about it, there might be too much [financial] risk taking “.
“Some messages are confusing, but maybe intentionally.”
U.S. equity investors are increasingly sensitive to signals of monetary policy change after stock valuations hit historically high levels, boosted by billions of dollars in government stimulus and Fed bond purchases .
Valuation of U.S. stocks based on a cycle-adjusted earnings return – a gauge used to gauge whether stocks are likely to be overvalued or undervalued – shows they are the most expensive since the dot-com bubble from the late 1990s, according to Goldman Sachs analysts. .
Those valuations are where they “should be” right now, Goldman analysts said in a research note. But the pressures on high valuations would likely result from high and sustained inflation in the United States, an associated rise in bond yields and a weaker job market, they added.
“Unusually low bond yields, low inflation and a rapidly improving labor market are conditions that should be associated with unusually high valuations,” they said. “As yields rise and the improvement in the labor market weakens, macro support for valuations is likely to erode.”
US government bonds came under pressure on Wednesday afternoon, with the 10-year Treasury yield moving inversely to its price up two basis points to 1.58 percent. That return, which fell from around 0.9% at the start of 2021, has been pinned in recent weeks by repeated comments from Fed officials that a spike in U.S. inflation would be temporary.
The Fed will get new inflation data on Friday, as forecasters expect prices for personal consumption goods excluding food and energy to rise at an annual rate of 2.9% in April. That would be the highest reading since June 1993, and beyond the Fed’s 2 percent inflation target.
The dollar index, which measures the greenback against major currencies, rose 0.5% but remained near its lowest level this year. The euro fell by the same margin against the dollar to $ 1.2194, while the pound fell 0.2 percent to $ 1.4123.
The world’s benchmark crude oil, Brent, rose 0.2 percent to $ 68.82 a barrel.