The equity market is trading sideways at best amid rising concern around trade and fiscal policy as the Memorial Day holiday approaches.
In recent weeks, long-dated U.S. Treasury securities have been pushed higher because of the risk of higher inflation and growing budget deficits.
Read more of RSM’s insights on the economy and the middle market.
Financial conditions remain a modest drag on growth as the financial and trade upheaval of the past 15 weeks appears to have pushed the market to the point of exhaustion.
The benchmark S&P 500 had already recovered nearly all of the losses incurred between its Feb. 14 peak and April 4 bottom.
Attention is now turning to interest rates as Congress attempts to pass a budget bill that would increase the U.S. debt and the cost of servicing that debt.
Those dynamics point to excessive risk priced into financial assets.
We expect the cost of credit for businesses to be pressured higher as the risk of a slowdown increases.
The Federal Reserve’s latest survey suggests that loan officers have already tightened their lending standards for commercial and industrial loans.
We also expect the cost of long-term investment to increase for households. As we have noted, the yield of the benchmark 30-year Treasury bond has been pushed higher, and that increase will affect the cost of mortgages.
Increased housing costs will reduce household disposable income while decreasing the affordability of additional purchases.
