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[in particular, the spread between the 2-year treasury yield and the federal funds rate has reached about 190 basis points, matching the widest level reached in the past 40 years, observes michael wilson, equity strategist at morgan stanley. “this pricing suggests that the bond market believes that the fed is behind the curve.” now wilson worries that the stock market is increasingly skeptical of this, too, and whether a 25 basis point rate cut will be enough to counter weak jobs data.]

on monday, the u.s. stock market took a breather from last week's sell-off. as the federal reserve enters a silent period, the market expects that the release of multiple economic data this week will hopefully make the outcome of next week's meeting clearer. some observers analyzed that the federal reserve's monetary policy and economic uncertainty are still the main factors for the volatility of the u.s. stock market in the short term.

“bad news is bad news”?

as rate cuts approach, market expectations have shifted from “bad news is good news” when easing is being pushed to “bad news is bad news” when the economy faces challenges.

since the beginning of this month, the yields of medium- and long-term u.s. treasury bonds have fallen sharply. the 2-year u.s. treasury bond, which is closely related to interest rate expectations, hit a new low since september 2022, and the benchmark 10-year u.s. treasury bond fell to 3.71%, the lowest since june 2023. the employment data has re-exacerbated investors' concerns about the slowdown of the u.s. economy and expectations of aggressive interest rate cuts.

the job openings and labor turnover survey (jolts) released by the u.s. department of labor last week showed that job openings, a measure of labor demand, fell to 7.673 million, the lowest level since january 2021. in the crucial non-farm report, new jobs in august were also lower than expected, combined with the continuous downward revisions to previous data, indicating that the labor market is losing momentum.