The S&P 500 Index falls back to the 4,250 level

• US stock indices fell on Thursday, following limited progress in talks between Russia and Ukraine.
• The S&P 500 fell 0.7% and traders also focused on another rise in the US CPI year-on-year.

US stock indices have reversed broadly lower on Thursday along with their global peers, as Wednesday’s optimism fades following less-than-expected progress at the latest high-level Russia-Ukraine meeting. The S&P 500 is down more than 1.0% on the day and has traded back below 4,250 after posting its best one-day percentage gain since June 2020 on Wednesday, when it bounced from 4,150 though failed to close above 4,300. At the time on Wednesday, some market commentators/investors had been warning that the uptick in sentiment was premature given the lack of progress towards de-escalation in the Ukraine conflict and given that commodity prices were still very high.

Those who labeled Wednesday’s move a “dead cat bounce” seem to have been right about Thursday’s more cautious price action. Indeed, in the absence of concrete signs that Russia and Ukraine are moving toward agreement on the terms of a ceasefire, and as Western nations continue to gawk over tougher sanctions against Russia, the stage is not yet set for a lasting rebound. of the stock market. Indeed, stagflation fears, which seem particularly acute in Europe, look set to remain a major macro theme in the coming months. The latest US consumer price inflation report for February, released on Thursday, emphasized the scale of the challenge.

Headline CPI rose to 7.9% y/y in February from 7.5% in January to hit new multi-decade highs, driven by a 0.8% mom increase in prices, in line with economists’ forecasts and analysts say consolidating expectations of a 25bp rate hike from the Fed next week. Amid the recent price action in the global commodity space, inflation is only rising as of now and markets remain undecided as to the degree to which the Fed will respond. Six 25bp hikes are expected this year, according to US money markets, but longer-dated bond yields continue to suggest that the Fed is not expected to raise rates above the “neutral” level (2.0-2.5%), i.e. , at levels that actually act as a drag on economic growth.

Depending on how bad the US inflation picture gets in the coming months, the prospect of markets starting to accept the idea that the Fed could push rates into contractionary territory to tackle inflation is a big risk. downside potential for the equity space. Looking at the performance of the other major US indices on the day, the Nasdaq 100 Index is down 1.4% and underperforming amid continued upward momentum in US bond yields. ., while the Dow Jones fell 0.5%. The CBOE S&P 500 or VIX volatility index remained lateralized in the 32.50 area.