- Tech stocks defied the general trend and rose on Monday.
- Fed’s Lisa Cook said inflation risks remain.
- Investors eagerly await crucial US employment data that will shape the outlook for US monetary policy.
Equities climbed to a one-week high on Monday as technology stocks rose despite high Treasury yields. However, market participants remained cautious ahead of key US economic data this week that will shape the outlook for Fed rate cuts.
Like many times in the past, tech stocks defied the general trend and rose on Monda. Microsoft rallied after reports that the company planned to invest in AI-enabled data centers. This news boosted equities despite a recent rally in US Treasury yields.
S&P 500 daily performance (Source: Bloomberg)
Recently, equities have been on a downtrend due to a rally in Treasury yields and uncertainty regarding Trump’s policies. However, this changed on Friday. Yields have soared due to expectations of a slow Fed eating cycle this year. The US Central Bank met and cut interest rates in December. However, policymakers projected a total of 50-bps in rate cuts for this year, surprising most.
In September last year, the central bank had expected to cut rates by 100-bps in 2025. However, a resilient economy and Trump’s win in November changed the outlook for monetary policy.
The US economy has stayed resilient despite high interest rates. At the same time, inflation has stalled above the 2% target. As a result, policymakers have called for caution in the coming months. On Monday, Fed’s Lisa Cook said inflation risks remained, assuming a hawkish tone. Equities thrive in an environment with low borrowing costs. Therefore, the prospect of a gradual Fed easing cycle is bearish for stocks.
However, market participants are also focused on factors like Trump’s new administration. Analysts believe that Trump will be good for the stock market. His policies on taxes and tariffs will likely favor the business environment in the US.
However, reports on Monday revealed that the tariffs will focus on critical sectors, meaning the impact will be softer than expected. Soon after the report, Trump denied any such plans, boosting yields. Nevertheless, some of the optimism regarding tariffs on imports faded.
Meanwhile, investors eagerly await crucial data from the US that will shape the outlook for US monetary policy. The nonfarm payrolls report will show job growth and unemployment in December. Strong figures will lower rate-cut bets. On the other hand, a slowdown in the labor sector would increase rate-cut expectations, boosting equities.
