Since April began, the US stock market has been grappling with persistent pressures leading to considerable adjustmentsThe recent release of employment and inflation data has cooled expectations regarding a shift in Federal Reserve policyCompounding this situation is the impending geopolitical tension, which serves as a catalyst for the turbulence, prompting a continuation of fund withdrawals from the stock marketAs we look to the week ahead, it becomes clear that uncertainty remains a significant obstacle, with the developments in the Middle East potentially acting as a key determinant in whether the market can stabilize promptly beyond the usual financial report season and the Federal Reserve's strategic outlook.

The Federal Reserve has signaled a need for patienceFollowing stronger-than-expected non-farm payrolls, the accompanying inflation data sent hopes of a dovish pivot in the Fed's stance into disarray

In March, the Consumer Price Index (CPI) for the United States saw a substantial rise of 3.5%, marking the largest increase since September of the previous year, largely driven by energy costs and rental pricesFurthermore, rising import prices have amplified the imminent threat to price stabilityIn light of a lack of evidence indicating a sharp economic deceleration, the Federal Open Market Committee (FOMC) may opt to maintain its current course for an extended period.

Bob Schwartz, a senior economist at Oxford Economics, conveyed in a recent interview that the persistence of elevated prices over three consecutive months has led markets to reassess the prospects of three rate cuts by the Fed this year"Even when stripping away the more volatile elements, the trend in prices remains concerning,” he saidThis is particularly true for the super core services prices that have accelerated largely due to labor costs, presenting a substantial challenge to achieving the Fed's 2% inflation target.

Amidst these spiraling sentiments, US Treasury yields have continued their upward trajectory, with the closely-watched two-year Treasury note rising more than 15 basis points to reach 4.88%, at points nearing the psychologically significant 5% mark

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Meanwhile, the 10-year Treasury yield is hovering just below 4.50%, not far from five-month highs.

Futures market indicators regarding the federal funds rate suggest investors have pushed back expectations for the first rate cut to SeptemberSeveral prominent Wall Street institutions, including Goldman Sachs, Deutsche Bank, Nomura, and PIMCO, have revised their forecasts, reducing the anticipated number of rate cuts this year from three to possibly one or two.

The minutes from the Fed's March meeting reveal that the recent rebound in prices has prompted a sense of vigilance within the committeeShould inflation begin to retreat, they are geared to maintain interest rates at current levels for longer than previously expectedThis sentiment has been echoed in remarks from various Fed officialsNotably, New York Fed President John Williams, who is considered a key advisor to Chair Jerome Powell, indicated that there is no immediate need to adjust monetary policy "in the short term.” He highlighted the Fed's significant progress in reducing inflation and emphasized the necessity of focusing on incoming data to navigate future monetary policymaking, stating, "We must remain data-dependent

I will continue to monitor data, economic outlook, and risks as we assess the best path to achieve our monetary policy objectives.”

Schwartz further indicated that this data-dependent mantra could compel the Fed to sustain high rates for a more extended period, with expectations for a rate cut in September now appearing more plausibleHowever, he noted that there has been no substantive shift in the Fed's perspective regarding inflation sustainably returning to the 2% target.

Informed by seasonal trends, Schwartz anticipates that inflation this year may display notable similarities to last year, characterized by a robust rise in the early months followed by a slowdown in the latter halfHe pointed out that core Personal Consumption Expenditure (PCE) metrics are of paramount importance to the FedIn March, PCE may have exhibited relatively modest growth compared to the core CPI increase of 0.4% due to signs of potential wage growth deceleration—a factor critical in shaping the trajectory of super core inflation.

Investor sentiment is further complicated by uncertainties disrupting market stability

Influenced by expectations of a Fed rate cut and various geopolitical pressures, optimism surrounding a "soft landing" and gradual interest rate declines has been challengedAll three major stock indices are experiencing downward adjustments, with a marked divergence in technology stocks that underscores a cooling of market risk appetite.

During this earnings season, investors have begun to receive alarming signalsMajor financial institutions, which often denote economic outlooks, are adopting cautious perspectives regarding future performanceJamie Dimon, CEO of JPMorgan Chase, warned of the continued pressures inflation poses to economic continuityLikewise, BlackRock’s CEO, Larry Fink, asserted that it will be difficult for US inflation to recede to the 2% mark, forecasting at most two rate cuts this year, though he expressed skepticism that even such action would suffocate inflation campfires.

Recently, US equity funds have recorded a second consecutive week of capital outflows

According to data provided by London Stock Exchange Group, net outflows from US equity funds reached $2.73 billion, with large-cap equity fund sales peaking at $5.28 billion, the most significant since January 10 this yearConcurrently, money market funds experienced a net sell-off of $34.98 billion, marking the third consecutive week of losses.

Notably, hedge funds have exhibited an increased bearish sentiment toward risk assetsTransaction data compiled by Goldman Sachs indicates that the hedge fund industry has engaged in consecutive weeks of selling global equities, with the most substantial pullback occurring in North American and European stocks, both reaching year-to-date highs for sell-off intensity.

Alexandra Wilson-Elizondo, Co-Chief Investment Officer of Global Multi-Asset Solutions at Goldman Sachs Asset Management, advised investors to gradually exit technology stocks

Although a soft landing for the US economy seems plausible, various risks have the potential to disrupt this trajectory"We favor taking profits in the tech sector and rotating into other sectors, as the risk-reward profile in technology appears to tilt toward downside," she noted.

Charles Schwab's recent market outlook underscored heightened volatility in the US equity market spurred by unexpected CPI data alongside significant upticks in Treasury yields and mixed performance from initial earnings reportsThere are growing indications that the market may begin to seriously interpret the risks associated with inflation.

The institution conveyed that investors now appear a bit on edge, particularly as the S&P 500 index rests near a crucial short-term support level—the 50-day moving average—marking its first instance since late November of last yearFurthermore, the volatility index (VIX) has shown signs of acceleration, even breaching the 19 threshold during the previous week