The decline in Americans' optimism this month, largely caused by a volatile stock market, is reflected in the latest consumer survey by the University of Michigan. The survey shows a 6% decline in sentiment, although it is still 6.5% better than a year ago. Higher-income consumers and those with significant stock holdings were particularly affected by this decline. The benchmark S&P 500 index has also experienced a decline since its peak in July, which has raised concerns among investors about the economy's resilience and the possibility of the Federal Reserve maintaining higher interest rates for a longer period. This has resulted in surging Treasury yields, with the ten-year US Treasury yield hovering around 5%. With the ongoing third-quarter earnings season, the performance of companies, especially major technology companies, could have a significant impact on the stock market. Although companies like Amazon, Meta, Microsoft, and Google parent Alphabet have reported strong results, there are some areas of concern, and the tech-heavy Nasdaq has entered correction territory. Given that Apple, Amazon, Nvidia, Microsoft, and Alphabet account for a significant portion of the S&P 500's value, investors closely monitor their performance. Additionally, Americans' inflation expectations for the coming year worsened in October, reaching 4.2%, the highest level since May, and expectations for inflation rates in the next five to ten years also increased slightly. If Americans continue to anticipate high inflation, it could lead to a period of permanently elevated prices, making it challenging for the Federal Reserve to bring inflation back down to its target of 2%.
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