Stocks and Gold Prices Down, US Dollar Up: Trend Change at Last?
Stocks and Gold Prices Down, US Dollar Up: Trend Change at Last?
By:Ilya Spivak
Are the markets finally coming to terms with why the Fed is really cutting interest rates?
- Stocks and gold prices are turning lower as yields and the US dollar rise
- PMI data helps justify the Fed’s policy turn, but for the wrong reasons
- Chair Powell expects the tariff impact on inflation will fade by year-end
Stock markets are in a defensive mood, with price action seeming to suggest that traders are still absorbing last week’s disappointing monetary policy announcement from the Federal Reserve. The US central bank struck a less dovish tone than markets hoped for, even as it resumed cutting interest rates with a 25-basis-point (bps) reduction.
Wall Street is on the back foot, with the S&P 500 down 0.38% so far this week and tech-tilted Nasdaq 100 off 0.47%. At the same time, Treasury rates are tracking higher across the yield curve and the US dollar is attempting a recovery, erasing an earlier selloff against the euro and adding 0.64% against the Japanese yen.
Stocks and gold prices retreat as the US dollar finds a lifeline
Gold prices are still broadly higher on the week, but a two-day rally at the start of the week has now been cut in half. Bitcoin is under pressure as well, and trading on pace to close down 1.4% so far. Tellingly, the markets have wound back priced-in 2026 Fed rate cut expectations to 63bps, the least dovish setting in over two months.
The markets seemed to embrace the Fed’s “run it hot” messaging last week, but the spell seems to be wearing off. This week, purchasing managers index (PMI) data from S&P Global seemed to endorse the US central bank’s move to ease, but perhaps for the wrong reasons.
The report showed that the pace of US economic activity growth slowed for a third consecutive month in September, moderating to the slowest since June. Moreover, it showed that soggy demand came alongside easing inflation pressure as companies struggled to pass on higher input costs from tariffs.
PMI data hints the US economy is running into trouble
More striking still, weak sales growth in the manufacturing sector pointed to a surge in inventories. Stockpiles jumped by the most in over 18 years of PMI data. While this may help generate disinflation that helps with the Fed’s rate-cut program, it likewise points to a genuine weakening of the economy, clashing with officials’ rosy forecasts.
For his part, Fed Chair Jerome Powell reiterated in a speech that last week’s rate cut was prompted by rising risks to the labor market. He added that while inflation remains above target and is likely to remain so for a bit longer thanks to the tariffs, that impact is expected to be relatively short-lived and dissipate by the end of the year.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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