Stocks opened lower and Treasury yields jumped on Tuesday after October's consumer-price index topped forecasts. The 10-year yield reached 4.99%, and the chance of a quarter-point Fed hike in December stood above 85%.
Stocks slipped and bond yields surged early Tuesday after an October inflation report suggested the Federal Reserve might need to raise rates faster. The report showed that prices rose 0.4% in October, above the 0.3% forecast, across broad categories of goods and services.
Yields climb toward 5%
The policy-sensitive 2-year Treasury note jumped 18 basis points to 4.74%, according to FactSet data, which put it on track for its biggest one-day rise in two years. That sits well above the 4% level marking the top of the Fed's short-term policy range, which indicates more rate hikes could be coming.
Along with it, the benchmark 10-year yield rose 12 basis points to 4.99%, putting the rate used to price new mortgages, corporate debt and other borrowing back at the cusp of 5%.
Stocks gave back ground as well. The S&P 500 was 0.2% lower on Tuesday, the Dow Jones Industrial Average was off 0.3% and the Nasdaq Composite was down less than 0.1%, according to FactSet.
Waller backs a half-point hike if core inflation hit 0.3%
Fed governor Christopher Waller said in London that he would recommend a half-point hike if core inflation hit 0.3% or more. It did, and he said that would suggest inflation keeps moving further away from the Fed's 2% yearly target.
According to the CME FedWatch Tool, the chances of a quarter-point hike in December were above 85%, while the probability of a half-point hike was near 15%, up from zero a day earlier.
Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said talk of a half-point increase would be irresponsible because higher rates won't resolve the oil shock from the Iran war. According to Pavlik: "I don’t think they should be raising another 25 basis points"
Gary Schlossberg, global strategist at Wells Fargo Investment Institute, said his firm would be patient and disciplined about buying equities on pullbacks and anticipates a choppier equity market ahead.
Source: MarketWatch
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