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It’s no longer just the Fed that runs the stock market

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A Federal Reserve meeting, Apple earnings and a monthly jobs report are all on the agenda this week, but another announcement from the U.S. Treasury caught investors’ attention on Monday.

The announcement in question is a quarterly redemption update scheduled for Wednesday, where investors will learn how much bond the U.S. government will put on the market next quarter. The fact that investors are interested in even the smallest details of the bond market reflects a sea change in how they track what could move markets in late 2023.

“For the last year and a half, all that mattered was the Fed story,” Blake Gwinn, head of rates strategy at RBC Capital Markets, told Yahoo Finance. “What mattered was how much was the Fed going to raise rates? Where is the terminal (rate)?”

But now, Gwinn points out, those results seem largely settled.

The market is pricing in a 98% chance that the Federal Reserve will keep interest rates steady at its meeting on Tuesday and Wednesday of this week. The debate on further rate hikes was largely postponed until the December and January meetings. And yet there is broad agreement among investors that the central bank will only make one more increase, if any, during this hike cycle.

Federal Reserve Chairman Jerome Powell speaks during a meeting of the Economic Club of New York in New York, Thursday, October 19, 2023. (AP Photo/Seth Wenig)

Federal Reserve Chairman Jerome Powell speaks during a meeting of the Economic Club of New York in New York, Thursday, October 19, 2023. (AP Photo/Seth Wenig)

Therefore, after more than a year of market-moving Fed decisions, investors’ attention has expanded to other factors, with varying impacts on stocks depending on history.

Third-quarter results got off to a good start, but that didn’t help move the major averages. Tensions in Washington have strategists worried about the government shutdown, but few are calling for real disruption in markets just yet. And while the The growing conflict in the Middle East has been discussed by many, but its impact on stocks remains largely unclear.

This all brings things back to the quarterly redemption announcement and the real reason it’s important: returns.

Gwinn notes that the focus on Wednesday’s announcement is likely due to how the event helped prepare for returns in August, and less on a surprise announcement from the government regarding its bond issue.

“It was certainly fundamentally justified that everyone started talking about the term premium and this shift (in yields),” Gwinn said. “But I don’t necessarily expect any sort of incremental improvement in this story as a result of this reimbursement…I don’t see any major revisions this month that should surprise the markets.”

In the short term, market strategists don’t think the “pain” from the bond sell-off is over yet and so the market’s focus remains on what any news could mean for the direction of Treasury yields .

“Returns are the focus,” Callie Cox, a U.S. investment analyst at eToro, told Yahoo Finance on Monday. “That’s been the case for a few months. So anything that might affect investors’ perception of returns is definitely something to watch, even if you’re not a bond investor.”

Zooming out, the market’s biggest question isn’t so much how high the Federal Reserve will raise interest rates. And it’s not just a question of how long rates will stay high, as investors have started to take notice over the past month.

The real debate goes beyond the Fed and examines what the delayed impact of more than 500 basis points of interest rate hikes could mean for the prospects of businesses and the economy as a whole.

“The pressure we’re seeing on 10-year yields has investors worried about the future because they’re wondering if something might break,” Cox said. “And this could be the story of the days and weeks to come, what could break?”

“Longer term, the story will be about the economy and how much the economy is slowing down.”

Josh Schafer is a reporter for Yahoo Finance.

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