After U.S. August CPI came in slightly above expectations, markets largely concluded that the Federal Reserve will raise rates at next week’s meeting, according to The Wall Street Journal. That expectation helped lift U.S. stocks on Friday rather than push them lower.
Investors appeared to welcome a clearer policy path, judging that more certainty around the Fed’s next move could reduce policy ambiguity and lessen the risk of markets bracing for even more aggressive hikes later.
Major indexes rose Friday but still ended the week lower
The S&P 500 gained 0.9% on Friday. The Dow Jones Industrial Average rose about 1%, and the Nasdaq also added 1%.
Even with that rebound, all three major indexes still posted overall losses for the week.
In the bond market, the 10-year U.S. Treasury yield closed at 4.974%, up notably from 4.783% a week earlier and approaching the 5% threshold.
Markets now expect a 25-basis-point move next week
Current market pricing points to a 25-basis-point rate increase at the Fed’s meeting next week.
RBC Capital Markets went further, revising its outlook from expecting rate cuts this year to forecasting three hikes. The firm said high interest rates could keep pressuring corporate earnings and stock valuations.
Oil prices added to market pressure
Energy markets remained another source of strain. Brent crude settled at $104.61 a barrel on Friday, bringing its weekly gain to more than 8%.
The report cited attacks by Houthi forces on Saudi energy facilities, transportation risks in the Strait of Hormuz, and Saudi Arabia’s closure of the East-West pipeline as factors that intensified supply concerns.
Wall Street’s focus has shifted
Although market sentiment improved on Friday, the combination of high oil prices and high interest rates still suggests that U.S. stocks may remain volatile.
On Wall Street, the central question has moved away from whether the Fed will raise rates and toward how long rates will stay high, and whether inflation can be contained without damaging the economy and corporate profits.