“The US equities market starts the week with renewed downward pressure following last week’s release of the Nonfarm Payrolls (NFP) report. This data, which exceeded expectations, has reinforced the idea that the Federal Reserve will maintain a less accommodative monetary policy than previously anticipated. This outlook, also supported by positive economic data in the US, has led to an increase in US fixed-income yields, putting downward pressure on equities.
The S&P 500 index, a reflection of market performance, shows a decline of approximately 0.6%, reversing the year-to-date gains in 2025 and moving into negative territory. This movement highlights the market’s sensitivity to monetary policy expectations. In theory, although it has somewhat challenged the US economy, less flexible policy has the potential to impact economic growth. Additionally, the rise in capital costs affects valuations by discounting cash flows at a higher present cost, reducing their current value.
The strength of the labor market, although positive at first glance, poses a challenge for equities. A robust labor market eases pressure on the Fed to cut interest rates, which in turn has a negative impact on company valuations.
Markets will be closely watching the inflation data set to be released this week. A rise in inflationary pressures is expected, which could strengthen the Fed’s less flexible stance and add pressure to risk assets. This factor compounds the already existing pressure on equities, creating an environment of greater uncertainty.
Personally, I am expecting this week’s inflation data to act as a key catalyst for the market. A higher-than-expected rise in inflation could solidify expectations of a less accommodative Fed, potentially driving market volatility. Another crucial factor for decision-making will be the start of the earnings season, which traditionally begins with the release of results from major banks. These reports will provide fresh insights into the financial sector’s health and the broader economy, influencing market sentiment.
In summary, US equities face a challenging environment, shaped by uncertainty over Fed policy, the imminent release of key inflation data, and the start of the earnings season.”
- Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone
