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On Friday, the S&P 500 fell 1.2% from its record high of 7501.24 on Thursday. A run of hot inflation data and a spike in bond yields did the damage on Friday. April headline CPI hit 3.8% y/y, the highest since May 2023, while core CPI was 2.8%. The big shocker was last Wednesday's April PPI for final demand, which rose 6.0% y/y, the biggest increase since December 2022 (chart).
Federal funds futures have fully reversed the Fed's easing path priced just three months ago, with the next move now expected to be a hike. The 2-year Treasury yield rose to 4.08% on Friday, confirming that the current federal funds rate (FFR) range of 3.50%-3.75% is too low. The 10-year Treasury yield jumped to 4.60%, and the 30-year topped 5.10%, the highest since May 2025.
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