Stock markets sent investors into another mad dash on Tuesday, plunging, recovering and then falling again. The S&P 500 opened 1.5% higher on Wednesday, but what does that mean after a week of such market swings?
The Federal Reserve’s policy announcement at 2 p.m. ET could provide some clarity, with uncertainty over what the central bank will say a key source of recent volatility, according to market watchers. Marlet.
Stock investors appeared to be worried about how aggressively the Fed would act to fight inflation, and details of its plans “will provide much-needed clarity on the direction of Fed officials,” said strategist Anu Gaggar. of the Commonwealth Financial Network. .
That said, the nervousness in stocks has not been reflected in other major markets, notes the DealBook newsletter. Some strategists believe these markets could give a better signal of where the economy is headed, given the remarkable rise in stock prices during the pandemic.
Government bonds, which in many ways are more closely tied to the Fed and the economy than stocks, seem to be following the trend. Yields, which move inversely to prices, have fallen over the past week, which is normally a sign of nervousness, but not by much.
“The bond market is unwilling to move decisively in one direction or another because the economy is still in pretty good shape,” said Vincent Deluard, strategist at StoneX Group.
Corporate bonds also remained in check, suggesting that investors are not too worried about the outlook for economic growth (a key driver of corporate solvency). In 2008, for example, corporate bond spreads – the difference between corporate debt yields and their government equivalents – increased by 4 percentage points. At the start of 2020, spreads increased by almost 3 percentage points. Over the past two months, corporate spreads have increased by less than a fifth of a percentage point.
The recent bond price revision has been “pretty orderly,” said Eddy Vataru, bond fund manager at Osterweis.