Fed tests safety margin as week begins
Saudi Arabian equities are facing challenges due to the delicate balance the market is experiencing. Prices remain below the 11,000-point level and continue to decline, accompanied by weak trading values, although these are not historically high. The market is influenced by the upcoming decision of the U.S. Federal Reserve regarding whether to raise or hold interest rates, especially as the yield on the 10-year U.S. Treasury bonds approaches the 5% mark. This figure is a significant benchmark for evaluating how high stock prices are relative to yields. Future market decisions will depend on how much bond yields change and the impact this has on stock valuations. An increase in yields without a corresponding improvement in profit expectations could lead to a decline in the fair value of stocks. Additionally, upcoming adjustments to inflation indicators in the U.S. may lead to inflation slowing down and reduce the need for further rate hikes, which in turn could affect market stability. Despite the decline, expectations for stock valuations have not changed significantly, as concerns remain about the ongoing high cost of capital. This situation requires the market to adapt to a potential environment of higher interest rates, while monitoring how shifts in yields influence stock performance and profitability.
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