It's not just the Fed driving the stock market anymore

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A Federal Reserve meeting, Apple earnings, and a monthly jobs report are all on tap this week, but a different announcement coming from the US Treasury caught investors' attention on Monday.

The announcement in question is a quarterly refunding update set for Wednesday where investors will learn how much bond supply the US government will put into the market next quarter. The fact that investors are even interested in the minutiae of the bond market reflects a stark shift in how investors are tracking what could move markets as 2023 comes to a close.

"For the last year and a half, all that mattered was the Fed story," RBC Capital Markets head of rates strategy Blake Gwinn told Yahoo Finance. "What mattered was how much is the Fed going to hike? Where is the terminal [rate]?"

But now, Gwinn pointed out, those outcomes feel largely decided.

The market is pricing in a 98% chance that the Federal Reserve will hold interest rates steady at its meeting on Tuesday and Wednesday of this week. Debate over another rate hike has largely been pushed out to the December and January meetings. And even still, investors largely agree that only one more increase, if any, is coming from the central bank during this hiking cycle.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

Federal Reserve Chairman Jerome Powell speaks at a meeting of the Economic Club of New York in New York, Thursday, Oct. 19, 2023. (AP Photo/Seth Wenig)
Federal Reserve Chairman Jerome Powell speaks at a meeting of the Economic Club of New York in New York, Thursday, Oct. 19, 2023. (AP Photo/Seth Wenig) (ASSOCIATED PRESS)

Therefore, after more than a year of the Fed's decisions driving the market, investor focus has spread to other factors, with varying degrees of impact for stocks depending on the story.

Third quarter earnings have been off to a decent start, but that hasn't helped move the major averages. Tensions in Washington have strategists concerned about a government shutdown, but few are calling for actual market turmoil just yet. And while the growing conflict in the Middle East has been discussed by many, any implications for stocks remain largely unclear.

All of which brings things back to a quarterly refunding announcement and the real reason it matters: yields.

Gwinn noted the emphasis on Wednesday's announcement is likely happening because of how the event contributed to the run-up in yields in August and less about a surprise announcement from the government regarding its bond issuance.

"It was certainly fundamentally justified for everyone to kind of start talking about term premium, and for that [yield] move," Gwinn said. "But I'm not expecting some kind of incremental boost to that story necessarily from this refunding. ... I don't see major revisions this month that should surprise markets."

In the short-term, market strategists don't think the "pain trade" from the bond sell-off is over yet, and therefore the key market story remains what any piece of news could mean for the direction of Treasury yields.

"Yields are the center of attention," eToro US investment analyst Callie Cox told Yahoo Finance on Monday. "They have been for the past few months. So anything that could affect investors' perception of yields is certainly something to watch, even if you're not a bond investor."

Zooming out, the biggest market question isn't as much about how high the Federal Reserve will raise interest rates. And it's not entirely about how long rates will stay high either, as investors have begun to price that in over the last month.

The real discussion is moving beyond the Fed and examining what the lagging impact of more than 500 basis points of interest rate hikes could mean for the outlook of companies and the overall economy moving forward.

"The pressure that we're seeing from the ten-year yield has caused investors to worry about the future because they're wondering if something could break," Cox said. "And that may be the narrative for the following days and weeks, what could break?"

"Longer term, the story will be around the economy and how much the economy will slow down."

Josh Schafer is a reporter for Yahoo Finance.

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