Two years ago on March 23 2020, the S&P 500 index troughed out from a COVID-related nosedive. Since then, it has rallied some 90%, thanks to massive government stimulus and unprecedented support from the Federal Reserve.
Now, markets face a new set of worries. Chief among them: whether the Fed, which lifted rates on Wednesday for the first time since 2018,– will be able to fight soaring inflation without driving the economy into recession.
Ten-year Treasury yields have risen nearly 70 basis points this year, while 2-year yields have jumped 120 bps. If the gap between the two segments, currently around 20 bps, turns negative, it could mean an economic recession is coming.
After the Fed laid out a steeper rate-hike trajectory than many expected, markets will watch upcoming data – besides PMIs, consumer sentiment, new home sales and durable goods are due. They may indicate whether the S&P 500 can claw back a year-to-date 8% loss.