Flows into Equity and Bonds Funds Substantial inflows into equity and bond funds are fueled by investor optimism regarding falling inflation and the potential for interest rate cuts by the Fed. Image: Deutsche Bank Asset Allocation
U.S. CPI Inflation vs. U.S. 10-Year Bond Yield CPI dynamics in early 2024 show a clear pattern: Q1’s higher inflation prompted increased Fed scrutiny, while Q2’s declines suggest potential interest rate cuts, impacting market expectations and U.S. Treasury yields on CPI days. Image: BofA Global Research
S&P 500 – Indexed Performance Until the summer, the S&P 500 achieved one of its best starts in history, closely following the trajectory of 1995. During that year, the Fed cut interest rates, marking the last soft landing in the U.S. economy. Image: Goldman Sachs Global Investment Research
U.S. Inflation – Core PCE and Core CPI Inflation is trending downward towards the Fed’s 2% target, a crucial aspect of its monetary policy aimed at maintaining price stability and anchoring inflation expectations at a moderate level. Image: BofA Global Research
Inflation – U.S. CPI Forecasts With inflation high, the Fed’s interest rate cut decisions require a delicate balance between price stability, economic expansion and employment support. Image: BofA Global Investment Strategy
U.S. Government Total Outlays U.S. federal government spending has risen sharply since the 2020s, sparking debates about fiscal responsibility and the long-term implications for the U.S. economy. Image: BofA Global Investment Strategy
Inflation – PCE Deflator YoY Projections The Fed faces challenges in managing a rate cut amid high inflation, requiring a delicate balance between inflation control, price stability, and economic growth to support employment. Image: BofA Global Investment Strategy
U.S. 10-Year Treasury Yield Since 1790 The trajectory and duration of the U.S. bond bear market can be influenced by factors such as inflation, economic growth, and the Federal Reserve’s monetary policy. Image: BofA Global Investment Strategy
Inflation – Potential Paths for U.S. Core CPI If the Fed cuts rates in June, U.S. core CPI is expected to exceed the Fed’s 2% inflation target, which could pose challenges for the central bank in maintaining price stability. Image: BofA Global Investment Strategy
Consecutive Trading Days of Inverted 10Y-2Y U.S. Treasury Yield Curve The anticipation of Fed easing is being driven by the aging of yield curve inversion. Market participants are expecting the Fed to cut rates in order to stimulate economic growth and prevent a potential recession. Image: Morgan Stanley Wealth Management