Wall Street News mentioned earlier. Prior to the release of the blockbuster non-agricultural report, when there were no signs of slowing down in various data such as inflation and employment, Federal Reserve Chairman Powell sent a dovish signal at the FOMC meeting this month, saying that the next step in interest rate “is impossible to raise interest rates.”

Powell's confidence probably stems from the fact that he has probably already previewed the non-farm payrolls data to be released on Friday, so he believes that interest rates have peaked and that interest rates may be cut even if inflation continues to stick slightly.

As a result, non-agricultural interest rates were cut in April, US stocks reversed strongly, US bonds jumped, and the S&P 500 index and US debt rose simultaneously on a weekly basis for the first time in a month. However, investors who bet on the Federal Reserve's delay in cutting interest rates have paid a huge price, and bears have been hanged and beaten violently.

All of this seems to be because Wall Street traders are trying to get ahead of the Federal Reserve, which relies on data, and the conflicting signals released by economic data have caused them to be “punched left and right”; whatever they do is wrong.

Taking the labor market as an example, data released on Tuesday showed that the employment cost index, which measures wages and benefits, recorded the biggest increase in a year in the first quarter, causing the 2-year US Treasury yield to rise above 5% on the same day.

However, three days later, on Friday, the non-farm payroll report showed that April wages recorded the smallest increase since 2021, while falling short of expectations. The overall non-agricultural report was better than expected, driving a significant decline in 2-year US Treasury yields.

The data was inconsistent, and traders and analysts alike were stunned

There are many more examples like this:

Retail sales soared and GDP growth slowed; industrial production continued to rise, manufacturing continued to decline; the number of jobless claims remained stable, and the number of employed persons declined.

For traders who are convinced that every economic indicator is likely to influence the direction of the Federal Reserve's monetary policy, this is certainly confusing, leading to a breakdown in subsequent trading operations. Nick Timiraos, a reporter from the New Federal Reserve News Agency and the Wall Street Journal, pointed out earlier that the current market's tendency to determine the Federal Reserve is not that important; what is more critical is economic and inflation data.

As a result, the stock market experienced sharp fluctuations. An indicator measuring the intraday volatility of US stocks jumped to the highest level since November last year.

In response, Mohamed El-Erian, dean of Queen's College in Cambridge, said in an interview with the media on Friday:

There are real concerns that the Federal Reserve relies too much on data, which will increase market volatility.

It is worth mentioning that not only Wall Street traders, but analysts are also “bewildered” by recently released economic data, and have to revise interest rate expectations every few months.

Friday's non-farm payroll data fell far short of Wall Street's expectations. Of the 61 analysts surveyed, only 5 predicted an average hourly wage increase of 0.2%. In contrast, last Tuesday's labor cost index increased by 1.2%, higher than the estimates of all analysts in the media survey.

Future prospects are uncertain, and there is a strong sense of caution

Although in the short term, bulls had the upper hand due to favorable Friday data and traders partially cashed out, investors still have doubts about the future prospects.

According to data compiled by the media, the net inflow of stock and bond ETFs in April was 32 billion US dollars, the smallest inflow since August 2023.

As rising yields discouraged Wall Street from longer-term assets, $3.6 billion flowed out of a large investment-grade credit ETF in April.

The Citibank Levkovich Index measures market sentiment by tracking indicators such as options trading, short selling, and fund flows. After a few weeks of fervor, the index is now neutral.

Retail investors, who once made a comeback, are now also showing fatigue. J.P. Morgan Chase quoted the flow data of options traders holding less than 10 options contracts as saying that demand to go long has fallen to its lowest level this year.

Amy Wu Silverman, head of capital markets derivatives strategy at the Royal Bank of Canada, said:

Options sentiment has taken a big turn. The boom in call options peaked at the beginning of March, and the YOLO and FOMO phenomenon we saw before (speculative behavior and fanatical upward sentiment among retail investors) has greatly abated.

Edit/Emily