Yahoo FinanceFed-Obsessed Traders Need the Economy to Get Its Story Straight

(Bloomberg) -- Another week of conflicting economic signals — and another painful lesson for Wall Street traders trying to front run the data-dependent Federal Reserve.
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After pulling money out of credit and crypto on inflation fears, while easing up on stocks, bears just took a hit as the S&P 500 and Treasuries notched their first in-tandem weekly gain in a month.
Constructive pronouncements from Federal Reserve Chair Jerome Powell and softer employment data fueled the uptick. Yet divergent economic reports are proving costly again and again for investors placing bets on the Fed’s next move on interest rates — a move that ostensibly hinges on the economic data.
But which? On Tuesday, a broad gauge of US labor costs rose by the most in a year, sending yields on two-year Treasuries above 5%. Three days later, a Labor Department report showed the smallest increase in wages since 2021, sending yields back down.
Recent reports suggest retail sales are surging along with slowing gross domestic product. Industrial production has been rising while manufacturing has been easing. Jobless claims are holding steady — yet hiring has ticked down. For traders convinced each and every input has the potential to influence monetary-policy decision making, it’s a recipe for confusion with one measure of intraday stock volatility jumping to the highest since November.
“There is a concern that the Fed is overly data-dependent,” Mohamed El-Erian, the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, told Bloomberg Television on Friday. “And what does that do? It amplifies the volatility in the market.”
Read more: Bond Market Parties On as Jobs Data Revive Fed Rate-Cut Bets
In the short term at least, the bulls have the upper hand thanks to Friday’s data while some froth has evaporated out of markets after day traders cashed out a chunk of their winnings.
“The biggest moment this week was Powell noting hikes are ‘unlikely,’” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “That coupled with the soft landing print this morning means there is great opportunity in yields.”
The S&P 500 gained 0.6% this week, while a Bloomberg index tracking US Treasury returns surged to end a four-week streak of losses. Day-to-day turbulence deepened, with average 20-day price swings in the stock benchmark reaching the highest since November.