The Fed Hike Fails to Cool Inflation
The Federal Reserve raised rates to 3.75%-4.00%, yet bond yields hit 19-year highs. This monetary tightening has not curbed inflation, leaving markets volatile and financial stocks under pressure.
The Federal Reserve lifted the funds rate to the 3.75%-4.00% range on Wednesday. This is the first increase since 2023. The 12-0 vote signaled a lack of near-term cuts. Kevin Warsh indicated further hikes are possible. The 10-year Treasury yield hovered at 5%. This level has not been seen in 19 years. The 30-year yield held near 5.34%. The rate hike did not lower these yields. It confirmed that the cost of money remains high.
Equity markets reacted with volatility. The S&P 500 closed Friday at 7,637.76. This is roughly where the week began. The Dow Jones Industrial Average finished at 51,778. The Nasdaq Composite closed at 26,418. The Russell 2000 ended at 2,874. Financial stocks suffered the most damage. Goldman Sachs and Bank of America each fell roughly 8% for the week. This is the largest weekly loss for the sector since March. The primary uptrend remains intact above key moving averages.
Bond yields hit nineteen year highs
Fixed income markets showed no signs of relief. The 10-year Treasury yield stayed near the 5% mark. The 30-year yield remained close to 5.34%. These levels reflect persistent inflation expectations. The dollar firmed slightly during the week. Gold held near $4,420 per ounce. Bitcoin rose to $81,190. This suggests the broader liquidity trade has not broken. However, the rise in rates pressures valuations across asset classes.
Financial stocks lead weekly losses
The financial sector absorbed the brunt of the selling. Banks declined as the yield curve and rate hike took effect. Energy stocks also weakened. Crude oil prices fell back below $100 per barrel. WTI settled around $95.46. Breadth in the market thinned significantly. Leadership narrowed to a handful of megacap names. Technology and AI-adjacent sectors kept the index afloat. The average stock lagged badly. This narrow participation makes the tape fragile.
Investor sentiment turns sharply bearish
The AAII survey showed a shift in mood. 53% of individual investors are now bearish on the six-month outlook. This is a jump of roughly 14 points from the prior week. It is the highest level of pessimism since last spring. This reading marks fear rather than complacency. Fear often benefits buyers more than sellers. The market now trades on two unforecastable prices. These are the price of oil and the price of money. Until one breaks lower, rallies are temporary rentals.
