The world’s biggest bond market saw a day of reversals, with Treasuries paring their weekly rally as strong economic data reinforced the view that it may be too early for the Federal Reserve to claim victory over inflation.

At the end of a week marked by optimism the Fed would be closer to ending its interest-rate hikes, a report showed consumer sentiment soared to an almost two-year high — while short-term price expectations rose. Bonds reacted immediately, with the front-end of the U.S. curve bearing the brunt of the selling. Stocks posted mild losses as traders cited “consolidation” after a rally that still drove the S&P 500 to its best week since mid-June.

“This doesn’t look like ‘mission accomplished’ yet,” said Don Rissmiller, one of the founding partners of Strategas, referring to the economic data. “The most important variable for consumer spending remains employment, which is still solid. But the tight U.S. labor market also is key for long-run inflation considerations.”

The two-year U.S. yield, which is more sensitive to imminent central bank moves, climbed 13 basis points to 4.76 per cent. That’s a stark contrast to the slide in rates over the past few days. The dollar posted a mild gain, trimming its largest weekly rout since November.

Investors also sifted through results from JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc, which benefited from higher interest rates — but easily beat lowered analyst estimates. UnitedHealth Group Inc.’s surged as profits allayed fears of runaway medical costs. AT&T Inc. sank to a 29-year low amid growing concerns about potentially higher costs for the phone giant.

Equity strategists are boosting earnings forecasts for the S&P 500 over the coming year faster than they are marking them down, pushing a key indicator tracking the momentum of analyst revisions well off its November nadir. 

After hitting negative 70 per cent late last year, this metric — which focuses on forward earnings-per-share over 12 months — is closer to positive territory at minus 28 per cent, according to data compiled by Bloomberg Intelligence. The indicator has been touted as a forward-looking gauge on the profit outlook that may support the case for stock gains over the coming year.

U.S. economic data has been encouraging, and the likelihood of a soft landing improves with every data point demonstrating resilience, according to Solita Marcelli at UBS Chief Investment Office. However, she maintains her preference for high-quality bonds over equities for three reasons.

“The good macro news is already priced into the S&P 500,” Marcelli noted. “In the second half, we expect an environment where inflation continues to fall, but U.S. growth also slows. That situation is good for bonds, but generally not equities. Third, the uncertain scale of the lagged effect of prior interest rate hikes means that both recession and a Federal Reserve policy error remain potential risks.”

Bank of America Corp.’s Michael Hartnett, who was correctly bearish on stocks last year, says market optimism that the economy will run neither too hot nor too cold is unlikely to last.

“Goldilocks rules risk assets for now,” but the second half is likely to bring higher consumer-price inflation, policy tightening and savings, the strategist wrote. “We’ll look to short risk assets in late-August or early-September and note a big, fat secular trading range remains the base case.”

Fed officials, on their part, continue to sound cautious.

Late Thursday, Fed Governor Christopher Waller said he expects two more rate increases this year to bring the inflation rate down to the Fed’s 2 per cent goal, though more good data on prices could obviate the need for the second hike. Fed Bank of Chicago President Austan Goolsbee told Fox News that recent consumer-price data showing inflation easing was “promising,” though inflation is still higher than policymakers’ target.

To Krishna Guha at Evercore ISI, it should come as no surprise that Fed policymakers — even less hawkish officials – strike a wary tone.

“This serves the purpose of retaining an option – even if it is now an out-of-the-money option – to hike a second time late in the year if the data surprises to the upside,” Guha added. “But it is also a way of keeping market rate cut expectations from being pulled forward too much while modeling a reaction function that implies a high realized outcome-based standard for eventually easing policy.”

Swaps pricing show expectations that the Fed is virtually certain to raise its benchmark rate by another 25 basis point when it meets this month, with a roughly one-third chance that the central bank will make one more such move before stopping its cycle.

Smaller, lesser-known digital tokens such as Solana and Avalanche outperformed Bitcoin for a second day after a federal court decision in a case involving Ripple Labs Inc. fueled a “fear of missing out” impulse among cryptocurrency proponents. 

Shares of companies with exposure to crypto surged this week as investors cheered a key ruling on one token as a win for the industry. Coinbase Global Inc. is on track to post a weekly gain of over 30 per cent, its best performance for the period since mid-March, despite whipsawing in regular trading Friday.

A gauge of emerging-market currencies saw its best week since January.

Nikola Corp. has finally reignited some of the fervor of its once die hard day-trading fans. The electric-vehicle maker is set to close the week with an almost 60 per cent surge.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average rose 0.3 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro was little changed at US$1.1225
• The British pound fell 0.3 per cent to US$1.3092
• The Japanese yen fell 0.6 per cent to 138.89 per dollar

Cryptocurrencies

• Bitcoin fell 4 per cent to US$30,145.94
• Ether fell 3.5 per cent to US$1,915.6

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.82 per cent
• Germany’s 10-year yield advanced three basis points to 2.51 per cent
• Britain’s 10-year yield advanced two basis points to 4.44 per cent

Commodities

• West Texas Intermediate crude fell 2.1 per cent to US$75.24 a barrel
• Gold futures fell 0.2 per cent to US$1,959.60 an ounce