The yield on the two-year Treasury, which tends to track expectations for the Fed, briefly jumped toward 4.70 per cent after the retail sales report, up from less than 4.60 per cent overnight and from 4.62 per cent late Tuesday. It then eased back to 4.66 per cent, still near its highest level since November.
The 10-year yield, which helps set rates for mortgages and other important loans, rose to 3.79 per cent from 3.75 per cent late Tuesday.
Following Tuesday’s data on inflation that was slightly hotter than expected, economists at Deutsche Bank raised their forecast for how high the Fed will take its key overnight interest rate. They now see it ultimately rising to 5.6 per cent, up from their prior forecast of 5.1 per cent.
The Fed has already pulled its overnight rate all the way to a range of 4.50 per cent to 4.75 per cent, up from virtually zero a year ago.
The Deutsche Bank economists said they still expect a recession, but that the near-term strength in the economy could push its timing into the last three months of the year, later than they earlier thought.
Many other traders have also been raising their forecasts for how high the Fed will ultimately take interest rates. They’ve also sharply reduced bets for the Fed to cut rates late this year.
Even still, stocks are hanging onto healthy gains for the year despite recent rockiness. The S&P 500 is up 7.4 per cent as strong data reports build hope that the economy may be able to avoid a recession. Or, if one hits, perhaps it may be only a short and shallow one.
The next big milestone for the market will likely be the Fed’s meeting in late March, where policymakers will give their latest forecasts for where interest rates will be at the end of the year, Hainlin said. That could lead to choppy trading in markets until then, as investors try to guess which way it will go.
On Wall Street, shares of Airbnb jumped 12.8 per cent Wednesday after reporting stronger profit and revenue for its latest quarter than analysts expected. It also said trends remain encouraging into the new year, and it gave a forecast for revenue that topped Wall Street’s.
On the losing end were stocks of energy producers, which dropped with the price of oil. Energy stocks in the S&P 500 fell 2.3 per cent, by far the worst performance of the 11 sectors that make up the index.
One of the sharpest drops in the S&P 500 came from Devon Energy, which fell 11.1 per cent after reporting weaker profit for the latest quarter than expected.
This earnings reporting season has been muted, with many companies reporting pressure on their profits from high costs and interest rates.
In stock markets abroad, Turkey’s market jumped nearly 10 per cent after trading reopened following a closure caused by the devastating earthquake in the region.
European stocks were modestly higher, with Germany’s DAX returning 0.8 per cent. Asian stocks were weaker, with Hong Kong’s Hang Seng down 1.4 per cent and South Korea’s Kospi down 1.5 per cent.