Wall Street kicked off Tuesday in the red, with the Dow (DIA, Financial) shedding 61 points to around 43,656.5, and the S&P 500 (SPY, Financial) and Nasdaq (QQQ, Financial) not far behind. Why? Investors are skittish ahead of the Fed's rate call later this week—especially after retail sales smashed expectations, rising 0.7% to $724.6 billion in November. That's a faster climb than economists anticipated and follows an upward revision to October's numbers. Translation? Consumers are still out there spending, even with inflation and higher rates in the mix. Good news for the economy, but a potential thorn for the Fed as it weighs keeping rates higher for longer.
But stocks aren't the only show in town. Barclays is sounding the alarm on junk bonds, with their high-yield complacency signal clocking in at 95%—its highest since late 2021. What does that mean? Investors are piling into riskier debt with spreads over Treasuries at a razor-thin 2.7%, a level last seen right before the 2008 crisis. Sure, falling yields on safer bonds and the economy's surprising strength are tempting buyers, but Barclays warns this kind of complacency has preceded four of the last five major market selloffs. Investors chasing yield here might be playing with fire.
Now all eyes are on the Fed's next move. With a roaring consumer, sticky inflation concerns, and risk signals flashing in the bond market, the stakes couldn't be higher. A hawkish stance from the Fed could jolt equities and rattle the “everything rally,” while any dovish surprise might offer a short-term lifeline. Either way, the message for investors is clear: tread carefully—resilience in one corner of the market doesn't mean cracks aren't forming elsewhere.
