Market Volatility: Key Factors Influencing Investors This Week

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Stocks had a rough start to the second quarter, following their strongest beginning to a year since 2019.

The S&P 500 dropped in the first two days of the new quarter and is currently down 0.8% for the week, although it did recover some losses on Wednesday. The 10-year US Treasury yield has risen to its highest level since last November. Meanwhile, both gold and oil prices are on the rise.

What's causing all this? Here are three factors making investors nervous.

Stubborn inflation remains a concern. The Personal Consumption Expenditures price index, which is the Fed's preferred inflation measure, increased by 2.5% for the 12 months ending in February. This was slightly higher than the 2.4% rise seen in January, meeting the expectations of economists surveyed by FactSet.

Investors are cautious about the possibility of ongoing inflation, as it could potentially impact the anticipated interest rate cuts in June or July.

Brent Schutte, the chief investment officer at Northwestern Mutual Wealth Management, expressed doubt that the Fed will change rates by the start of summer based on the most recent data.

This week, long-term bond yields have increased significantly, putting pressure on the stock market. The 10-year US Treasury yield was at a four-month peak of 4.36% as of Wednesday at 3 pm ET, according to Tradeweb.

Some Fed officials shared at the central bank’s policy meeting that they anticipate fewer rate cuts for 2024 compared to last December's forecast of three.

According to the latest set of economic projections from the Fed, the current target interest rate ranges between 5.25% and 5.5%. Among the 19 officials on the committee, four now believe rates will remain above 5% this year, indicating they expect either one rate cut or none at all.

Central bank officials have recently reiterated their expectation that interest rates will remain high for a longer period.

Fed Chair Jerome Powell emphasized at a San Francisco Fed event and a speech at Stanford University that rate cuts are not on the horizon.

Cleveland Fed President Loretta Mester, in prepared remarks, stated that a rate cut next month is not likely.

Atlanta Fed President Raphael Bostic mentioned in an interview with CNBC that he predicts one rate cut in the fourth quarter this year, citing persistent inflation.

Traders are now expecting a 63% chance of the Fed cutting rates in June, down from over 70% just a week ago, as shown by the CME FedWatch Tool.

Commodities prices are on the rise, with the price of US oil reaching a five-month high due to increased conflict in the Middle East raising worries about limited crude supply.

Production cuts from OPEC+ and its allies have increased the upward pressure on prices. On Wednesday, West Texas Intermediate crude settled at $85.43, while Brent crude futures settled at $89.35.

Bank of America strategists have raised their forecasts for Brent and WTI crude to $86 and $81 a barrel, respectively. They anticipate prices to peak at around $95 a barrel this summer.

"With tensions escalating in the Middle East, OPEC+ supply side actions have managed to decrease the volatility of crude oil," stated BofA strategists in a report released on Wednesday. Furthermore, they noted that the global oil markets are now experiencing a deficit due to improved economic growth expectations.

In response to the current economic climate, the price of gold has seen a significant increase this week. Investors often turn to gold during periods of high inflation, believing that it will retain its value when other assets may not. Additionally, gold is viewed as a safe haven investment. On Wednesday, the price of the most actively traded gold futures contract reached a record high of $2315 per troy ounce.

Two investors involved in the insider trading case related to Trump Media have admitted their guilt. Florida venture capitalist Michael Shvartsman and his brother Gerald Shvartsman pleaded guilty on Wednesday. The insider trading scheme was connected to the deal that took former President Donald Trump's social media company public, as reported by my colleague Matt Egan.

Both brothers have admitted to committing securities fraud in New York, a crime that can result in a maximum prison sentence of 20 years, as stated by federal prosecutors.

In June, both siblings were taken into custody and accused of engaging in unlawful trading based on confidential information about a shell company's undisclosed intention to acquire Trump Media & Technology Group, the company that owns Truth Social, a social media platform facing challenges.

Damian Williams, the US Attorney for the Southern District of New York, stated that Michael and Gerald Shvartsman confessed in court to using confidential information about an upcoming merger between DWAC and Trump Media for illegal stock trades.

According to the indictment, the brothers, along with Bruce Garelick, allegedly earned over $22 million in October 2021 by leveraging their inside information on the merger.

Shares of Digital World Acquisition Corporation, a shell company, went up after announcing a merger with Trump Media through a public agreement.

"Insider trading is simply cheating," stated Williams. "The recent convictions serve as a reminder to those considering corrupting the stock market that it will lead them straight to prison."

Read more here.

US government review faults Microsoft for ‘cascade’ of errors that allowed Chinese hackers to breach senior US officials’ emails

Microsoft made a series of mistakes that could have been avoided, leading to Chinese hackers infiltrating the company's network and accessing the email accounts of top US officials, including the secretary of commerce. A review by the US Cyber Safety Review Board (CSRB), composed of government and private cybersecurity experts under the Department of Homeland Security, concluded that the hack was entirely preventable and should not have happened. This report was released on Tuesday as part of President Joe Biden's initiative in 2021 to investigate the underlying causes of significant hacking incidents.

The review board criticized Microsoft (MSFT) for not properly safeguarding a crucial cryptographic key. This allowed hackers to access Outlook accounts by pretending to be legitimate users, as reported by my colleague Sean Lyngaas.

According to the report, Microsoft's security practices were found to be lacking and in need of a major revamp due to the company's significant role in the technology industry.

The hack caused chaos in Washington and allowed Chinese agents to get into the non-secret email accounts of top American diplomats, such as US Ambassador to China Nicholas Burns. This happened right before Secretary of State Antony Blinken's important trip to China in June, as per CNN's report.

Editor's P/S:

The article provides an insightful overview of the current economic landscape, highlighting the concerns that are making investors nervous. Stubborn inflation, rising long-term bond yields, and increasing commodity prices are all contributing to a sense of uncertainty in the market. The article also touches on the recent guilty pleas in an insider trading case related to Trump Media, as well as a US government review that faults Microsoft for a series of errors that allowed Chinese hackers to breach senior US officials' emails.

It is important for investors to be aware of these factors and to adjust their strategies accordingly. While the stock market has had a rough start to the second quarter, it is important to remember that markets are cyclical and that there will be periods of volatility. By staying informed and making sound investment decisions, investors can weather the storms and achieve their long-term financial goals.