Market Trends: Rate cut expectations scaled back

Both equity and bond markets weakened in April due to a significant rebound in bond yields. Bond yields rose as sticky inflation and resilient economic growth caused markets to further scale back the degree of expected rate cuts later this year in the United States and Australia.

In Australia, the market moved to price in a small chance of another rate rise by year-end. In the United States, only one rate cut is now expected this year compared to expectations for 6 rate cuts at the start of the year.

Bond yields are still below their peaks of late 2023, but their recent retracement has dented the equity market bull run especially given already stretched valuations. Sustained further gains seem to require a decent decline in bond yields (without a recession) or further gain in forward earnings.

With inflation still expected to decline, and central banks still expected to eventually cut interest rates, the market outlook remains encouraging – though the risk of a continued short-run equity market correction remains high.

Get the Market Trends report

Photo of David Bassanese

Written by

David Bassanese

Chief Economist

David is responsible for developing economic insights and portfolio construction strategies for adviser and retail clients. He was previously an economic columnist for The Australian Financial Review and spent several years as a senior economist and interest rate strategist at Bankers Trust and Macquarie Bank. David also held roles at the Commonwealth Treasury and Organisation for Economic Co-operation and Development (OECD) in Paris, France.

Read more from David.


Leave a reply

Your email address will not be published. Required fields are marked *

Previous article
Next article