Even Wall Street Bulls are Worried About a Stock-Market Pullback After Dazzling Second Quarter

💡 Even the most bullish investors on Wall Street are warning about a potential stock-market pullback after a strong second quarter.

The Federal Reserve delivered a hawkish surprise on Wednesday, signaling that interest rate cuts remain further away than markets had hoped. Fed Chair Jerome Powell told reporters that the central bank needs "greater confidence" that inflation is sustainably declining before it will consider easing policy.

The 10-year Treasury yield surged to 4.8% in the aftermath, its highest level since October 2023. $TLT fell sharply as bond traders repriced the timing of the first cut from March to June.

Market Sentiment Shifts

Wall Street's most confident investors, who had been predicting a smooth ride for equities, are now warning about a potential correction. Their concerns are centered around the Federal Reserve's recent hawkish comments, which have led to a surge in bond yields and a decline in stock prices.

Inflation Fears Persist

Despite the strong second-quarter earnings season, inflation fears continue to weigh on investor sentiment. The latest Consumer Price Index (CPI) data showed that prices rose by 3.2% year-over-year in June, exceeding the Federal Reserve's 2% target.

Interest Rate Expectations

Investors are now pricing in a higher probability of a 50-basis-point rate hike at the Federal Reserve's July meeting, up from just 20% before Powell's comments. This shift in expectations has led to a sharp decline in stock prices, with the S&P 500 falling by 2% over the past week.

What It Means for Investors