Wall Street wrapped up a volatile week with a mixed performance from stocks while investors sought safe-haven assets such as U.S. Treasury bonds and gold, as the Israel-Gaza war looked likely to escalate. For the week, the Dow Jones posted a 0.8% gain and the S&P 500 added 0.4%, but the tech-focused Nasdaq fell 0.2%.
Israel’s campaign to destroy Hamas after the militant group’s surprise incursion and brutal killing of at least 1,300 people last weekend—mostly civilians—is entering a new phase and could take the US and rest of the world into a new place in the Middle East.
In the middle of the unrest in Israel, Walmart warned that consumers are starting to buckle due to various negative factors. Consumer health is being impacted by inflation, higher interest rates, federal budget issues, polarized politics, and student loan repayments. Consumer activity is crucial to the U.S. economy, accounting for 70% of economic activity, making it important for investors to pay attention to this trend.
And, US consumer prices advanced for a second month, likely reinforcing the Federal Reserve’s stated intent to keep interest rates high to further slow inflation.
What are we to expect from the stock market over the next few months?
Future Wealth’s View
Trying to make sense of the sell off in the stock market is in itself a prolonged and constant effort. We, at Future Wealth LLC, believe that the answer to the stock market woes lies in treasury yields – US Treasury yields have surged, with the 10-year yield briefly topping 4.8% and the 30-year yield breaching 5%. Higher yields mean tighter financial conditions, which in turn weigh on growth.
And so, the answer could lie in data that shows that economic growth is slowing which will, in turn, drive lower yields. For that to happen, consumer spending has to crack. With the jobs data showing that the US economy continues to add new jobs at a rapid rate, consumer spending is unlikely to slow down any time soon.
Given this backdrop, if there is anyone willing to step up and predict the direction of the stock market for the next few months, we are all ears!