S&P 500 Retreats from Record Highs While USD/JPY Climbs: Market Update
Original article by Axel Rudolph, published on IG.com
The global financial markets experienced mixed movements as investors navigated key economic data, shifting central bank expectations, and commodity price corrections. The S&P 500, after reaching new all-time highs earlier in the week, slipped slightly lower, reflecting profit-taking and renewed concerns over inflationary pressures.
Silver prices, which had recently hit their highest level in over 13 years, also corrected downward. Meanwhile, the US dollar strengthened against the Japanese yen, with USD/JPY reaching new multi-month highs, fueled by speculation that the Bank of Japan would maintain its ultra-loose monetary policy for longer than anticipated. Here is a breakdown of these market moves and the possible influences behind them.
US Equity Markets: S&P 500 Pullback After Record Highs
The S&P 500, which has continued to benefit from resilient earnings, artificial intelligence enthusiasm, and Fed pause optimism, ran into resistance after notching fresh record highs.
Key developments:
– The index retreated modestly from recent all-time highs near the 5,500 level.
– Market participants looked to lock in profits following a sustained rally that has been largely driven by technology and AI-related stocks.
– Analysts noted that broader market participation remains limited, even as headline indices hit new records.
– The pullback was also attributed to cautious positioning ahead of upcoming economic data, including US inflation figures and the Federal Reserve’s preferred inflation indicator, the Core PCE Price Index.
Market sentiment continues to be influenced by the tug-of-war between inflation fears and growth optimism. Investors are keenly monitoring interest rate expectations, with the Fed remaining largely data-dependent. With inflation moderating but still above the 2% target, markets are adjusting their expectations for future rate cuts.
Federal Reserve Rate Expectations
Fed officials have signaled patience, expressing a preference to wait for more evidence of cooling inflation before initiating rate cuts. As a result, expectations for easing have been delayed throughout the year.
Latest projections:
– A rate cut in September remains on the table but is far from certain.
– Fed Funds Futures suggest markets are pricing in only one or two rate cuts in 2024, down from earlier expectations of three or more.
– Policymakers have emphasized the importance of incoming labor market and inflation data.
These shifting expectations are having notable impacts on various asset classes, including equities, commodities, and currencies.
Silver Prices Fall from 13-Year Peak
After reaching a 13-year high, silver prices have reversed course, shedding recent gains as investors reassess precious metals’ role as an inflation hedge amid changing interest rate forecasts.
Recent performance:
– Spot silver surged to a peak around $32.50 per ounce, its highest level since 2011, driven by increased investor interest and industrial demand.
– The commodity has now given up a portion of those gains amid profit-taking and a stronger US dollar.
– Technical resistance near multi-year highs, combined with shifting macroeconomic dynamics, contributed to the pullback.
Factors behind the correction:
– Stronger dollar: As the greenback has firmed up against a basket of currencies, dollar-denominated commodities like silver have weakened.
– Less dovish Fed outlook: Expectations that US interest rates will remain higher for longer have reduced the appeal of non-yielding assets such as silver.
– Reduced safe-haven demand: As risk appetite remains high in equity markets, some investors have trimmed their exposure to defensive assets like precious metals.
Despite the pullback, silver remains up significantly year-to-date, underpinned by anticipated strong industrial demand from sectors like renewable energy and electronics.
USD/JPY: Yen Weakness Pushes Pair to Multi-Month Highs
The US dollar strengthened decisively against the Japanese yen, with USD/JPY rising
Explore this further here: USD/JPY trading.