Wall Street Welcomes Clearer Policy Path, Stock Market Rebounds Despite Rising Rate Hike Expectations

1. Wall Street is showing a welcoming attitude toward the clarification of the Federal Reserve's policy outlook, even if this means interest rates may be higher. Last Friday, the U.S. stock market rebounded and the bond market stabilized, marking the end of a turbulent week. Previously, slightly higher-than-expected inflation data prompted investors to increase bets on a Fed rate hike on Wednesday, but after weeks of speculation, market sentiment instead eased. Prudential's co-chief investment officer for credit noted that the inflation data "took away a lot of unnecessary guesswork," and investors would rather have some certainty than unresolved ambiguity.2. Earlier last week, concerns over rising inflation triggered heavy selling in the bond market, with the 10-year U.S. Treasury yield approaching the 5% mark, recording the largest single-day increase since May, disregarding Treasury Secretary Yellen's efforts to expand debt buybacks to lower yields. The surge in oil prices further intensified inflation worries—Houthi forces once again threatened Saudi energy infrastructure, with Brent crude nearing $110 per barrel late last Thursday and settling at $104.61 last Friday.3. The double blow of soaring energy prices and rising Treasury yields finally affected the stock market. As of last Thursday, the S&P 500 index had fallen 1.8% for the week. High yields raise borrowing costs for economies and drag on growth, while also providing investors with safer and more attractive returns, undermining the appeal of stocks.4. After last Friday's CPI report, market reactions shifted. Core CPI rose 0.3% month-on-month, higher than expected, and Treasury yields across all maturities jumped, seemingly confirming consensus on a rate hike. However, long-term Treasury yields soon retraced as investors hoped for a more hawkish Fed to act decisively against runaway inflation. Yet by the market close, yields once again surged closer to the 5% threshold, with the benchmark 10-year yield closing at 4.974%.5. In other markets, the S&P 500 rose 0.9% last Friday, the Dow climbed around 1% or 509 points, and the Nasdaq added 1%, but all three major indexes still recorded a weekly loss.6. Investors continue to face multiple headwinds. Some analysts warn that persistently high yields could choke off corporate earnings growth, and it is precisely this growth that has driven the stock market to repeated record highs this year.