Scott Olson
Market indices took an upward trajectory at the commencement of Wednesday’s trading, propelled by Netflix’s robust performance fueling the growth-stock momentum.
Kicking off the day, the Nasdaq Composite (COMP.IND) recorded a solid +0.8% gain, closely followed by the S&P 500 (SP500) marking +0.5%, and the Dow (DJI) showing an uplift of +0.3%.
The Communications Services (XLC) sector experienced a 1% surge, with Netflix (NFLX) basking in a post-earnings gain of more than 8%.
Rates Dip in Response to Bullard’s Comments
Yields moved lower following remarks by former Fed governor James Bullard advocating an early rate cut. Chance of a 0.25% cut in March rose to over 50% from the low-40s yesterday.
Bullard voiced in a Wall Street Journal podcast, “The FOMC doesn’t want to get into the second half of 2024, and inflation’s already at 2% and you still haven’t moved the policy, right? That would be too late.”
The 10-year Treasury yield (US10Y) plummeted by 4 basis points to 4.09%, while the 2-year yield (US2Y) saw a significant 8 basis points decline to 4.29%.
Bond Market Signals
Notably, ING remarked, “The 5yr (US5Y) part of the curve trades rich in absolute terms, given the ongoing inversion of the 2/5yr segment. Indeed this richness attached to the 5yr is indicative of a bond market that is not taking an imminent rate cut seriously.”
Upcoming January PMI Figures
Shortly, the preliminary January S&P Global U.S. PMI numbers are expected. Projections suggest the manufacturing index to remain steady at 47.9 and the services PMI to decline to 51.
Reality versus Perception
UBS’ Paul Donovan questioned the reliability of survey data, stating, “Surveys attract media attention because if you assume the survey does what it says it does, it can produce a more dramatic story. However, survey evidence has been a progressively less reliable description of reality across various measures.”
He further elaborated, “It is easier to answer a survey with perception rather than reality (reality requires thought). This helps explain why consumer surveys report more inflation than exists – US vending machine inflation is over 13% y/y, distorting inflation perceptions (falling television prices leave perceptions unaltered).”
Donovan also pondered, “If survey response rates fall, people who fill in surveys are more likely to be strange. What motivates the dwindling numbers of respondents to fill in surveys? Loss aversion, in a different form. Bad news is more powerful than good news, so those who want to complain have an incentive to fill in a survey.”
