(Bloomberg) — Stock markets ended the week on a strong note after explosive jobs data suggested the U.S. economy will continue to lead U.S. companies, even if it means higher interest rates are still possible. finished.
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All major groups in the S&P 500 rose, with the index up more than 1%. Wall Street on Friday called the glass half-full view based on the assumption that if the economy remains this strong, there would be no urgency for the Federal Reserve to begin easing policy. Decided.
This triggered hawkish repricing in bond markets. Treasury yields rose and traders lowered their expectations for a 2024 Fed rate cut to about 65 basis points, or below the level the central bank expected last month.
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U.S. payrolls rose by 303,000 jobs in March, exceeding all expectations. The unemployment rate fell slightly to 3.8%, wages grew steadily, and the labor participation rate rose, highlighting the strength of the labor market that drives the economy.
“Bang! Employment is rising and rates need to be cut,” said George Mateyo of Key Wealth. “The Fed will probably need to reconsider its current stance of cutting rates three times this year. But the reason this change in stance is likely is because of its bullish stance that the economy is doing well.”
The S&P 500 index topped 5,200, but Friday’s gains made it inevitable that the index would record its worst week since January. Meta Platforms Inc. led the megacap rally. Tesla Inc. closed off the trading low after Elon Musk denied reports that the automaker had scrapped plans for a low-cost car.
The yield on the 10-year US Treasury note rose 9 basis points to 4.40%. Brent crude oil hovered above $90 amid geopolitical tensions.
“It’s hard to find fault with the March jobs report,” said Steve Wyett of BOK Financial. “The only people who might be disappointed by today’s report are those looking for relief through a Fed rate cut. We still expect the Fed’s next action to be a rate cut, but there is no sense of urgency at this point. rare.”
Chris Zaccarelli of the Independent Advisor Alliance says consumer spending and corporate profits matter more to investors than how quickly and how many times the Fed cuts interest rates, which would push stock prices higher. It is likely to rise.
“The number of rate cuts and whether they start in June or July are not as important as whether the Fed is in rate cutting mode,” he said. “Put another way, four, or three, or two rate cuts in 2024 are all equally good for the stock market. But if we cut rates to zero or raise rates, all bets are off. , that would be decidedly worse.”
Glenn Smith of GDS Wealth Management said Friday’s jobs report shows the economy remains resilient despite waning expectations for a Fed rate cut.
“The fact that the labor market is so strong shows that businesses and the economy are adapting to high interest rates,” he said.
Mohamed El-Erian still expects Fed officials to cut interest rates twice this year, even as the strong jobs report is forcing traders to reconsider their timing.
“If the Fed continues to rely too heavily on data, they may not be able to cut interest rates,” El-Erian, president of Queen’s College at the University of Cambridge and a Bloomberg Opinion columnist, said on Bloomberg TV. Ta. “But I hope they see through the negative data and look forward.”
By September, traders had completely stopped pricing in a Fed rate cut after the March jobs report. Swap contracts that predict the central bank’s interest rate decisions have lowered the probability of a rate cut in June to about 52%. For July, the probability was less than 100%.
Dallas Fed President Laurie Logan says it’s time to consider cutting interest rates, citing recent high inflation rates and signs that borrowing costs may not be holding back the economy as much as previously thought. He said it was too early. Governor Michelle Bowman also expressed concern about potential upside risks to inflation and reiterated that it was “not yet” time to cut interest rates.
Chairman Jerome Powell has said strong employment alone will not be enough to delay policy easing, but Friday’s jobs report suggests that cuts this year will be more likely, especially when combined with an increase in key inflation data in early 2024. Increase the likelihood of delays or reductions.
“There is no weakness in the job market that would prompt the Fed to cut rates quickly, but there are also no signs of tightness that would prevent the Fed from cutting rates,” said Morningstar’s Preston Caldwell. “The Fed’s decisions at upcoming meetings will largely depend on inflation data.”
Officials will release the latest statistics on consumer and producer prices next week, followed by an update on the Personal Consumption Expenditure Price Index, their preferred measure of inflation, by their April 30-May 1 meeting. We plan to announce the values for March.
“Our base case is that the Fed cuts interest rates in June and then cuts rates a total of three times by the end of 2024, which requires some softening in both labor market and inflation data,” Brian Rose said. I think we need to do that.” At UBS Global Wealth Management. “Next week, markets are likely to focus on March CPI data, which is expected to have a smaller monthly increase compared to the past two months.”
The trajectory of consumer price inflation remains the key determinant of near-term easing, which raises bets on next week’s CPI report, according to TD Securities’ Oscar Muñoz and Gennadiy Goldberg.
“We remain of the view that the June meeting will still determine when the Fed will start cutting rates.”
A June rate cut may be at risk, but next week’s CPI numbers will likely be a “bigger litmus test” for the Fed, according to TradeStation’s David Russell.
“The Bears haven’t won yet,” he said.
Wall Street reaction to employment data:
Oops, I did it again. Today’s employment report showed that the labor market again exceeded expectations.
Overall, the report itself does not change the Fed’s rate cut plans, but together with other information it argues for only two rate cuts in 2024, rather than the three currently expected. may be used for.
We still think the Fed will cut rates, but this latest jobs report shows that the Fed is in no hurry to save the labor market, especially if inflation only flares up again in the future. It should show that there is no such thing.
I’m still expecting a rate cut in June, but I’m waiting for Wednesday’s CPI report to show. From a fundamental policy perspective, the economy is still very strong, so there is little need to start cutting interest rates.
Another strong jobs report suggests the economy is strong and far from recession. Ultimately, this will postpone any rate cuts by the Fed, but slower wage growth means we’re not in the midst of a labor market-induced inflation spike.
This is a robust labor economy that shows little sign of slowing down in the near term. What do interest rates mean? There is even less reason for the Fed to feel any urgency to announce its long-awaited first rate cut.
There are many things worth noting about the March employment report. Fed officials can remain confident that they are meeting the maximum employment element of their dual mandate. The big question is when and if it can start cutting rates in the fight against inflation.
We still believe the Fed will begin cutting insurance later this year to make a soft landing a reality. Especially given that some of the recent data outside of payroll points to a decline in macro momentum.
Stop me if you’ve seen this headline before. But once again we are seeing massive job losses.
The reason for the beat at this point is irrelevant; the main point is that the Fed is once again in an impossible position. The reduced lifeboat we had all been hoping for drifted further away to be seen, leaving us in the wide open spaces of the highlands for longer.
Aside from next week’s key inflation numbers, traders will also be watching for the start of earnings season for JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup Inc., which are scheduled to report results on Friday.
“Earnings season will see a polarized market, with many companies thriving and a growing number of smaller companies struggling,” said Yun Yu Ma of BMO Wealth Management. “This is partly a reflection of the economy as a whole, with lower socio-economic groups facing greater strain, but this bifurcation is also a result of rising interest rates and other changes occurring in the economy. ”
Investors poured $7.1 billion into U.S. stocks in the week ending Wednesday, according to Bank of America strategists citing data from EPFR Global. U.S. stock flows have reached $310 billion annually, the second highest level on record. Tech stocks are gaining an all-time high of $73 billion annually.
“The relatively modest decline in stock prices from record levels despite the significant rise in interest rates and changing Fed expectations reflects market resilience,” said Nationwide’s Mark Hackett. ” “The next challenge is earnings season, and the reaction to the news will shape the path forward for stocks.”
Company highlights:
United Airlines Holdings has canceled an investor meeting scheduled for early next month, saying celebrating the company’s achievements would “send the wrong message” following a series of headline-grabbing safety incidents. do.
Johnson & Johnson has agreed to acquire Shockwave Medical for approximately $13.1 billion to strengthen its expansion into manufacturing medical devices for heart disease treatment.
Meta Platforms told a judge that the U.S. Federal Trade Commission is seeking to break up the company, saying the agency cannot prove that consumers would have been better off without the acquisitions of Instagram and WhatsApp. It asked that the antitrust lawsuit be dismissed.
Chesapeake Energy’s $7.4 billion acquisition of Southwestern Energy Corp. has been delayed until the second half of this year after antitrust regulators requested more details from the natural gas exploration company.
The main movements in the market are:
stock
As of 4 p.m. New York time, the S&P 500 was up 1.1%.
Nasdaq 100 rose 1.3%
The Dow Jones Industrial Average rose 0.8%.
MSCI World Index rose 0.4%
currency
Bloomberg Dollar Spot Index little changed
The euro was almost unchanged at $1.0835.
The British pound was almost unchanged at $1.2634.
The Japanese yen fell 0.2% to 151.64 yen to the dollar.
cryptocurrency
Bitcoin fell 0.7% to $67,447.63.
Ether fell 0.1% to $3,321.25.
bond
The 10-year Treasury yield rose 9 basis points to 4.40%.
Germany’s 10-year bond yield rose 4 basis points to 2.40%.
The UK 10-year bond yield rose 5 basis points to 4.07%.
merchandise
West Texas Intermediate crude rose 0.1% to $86.71 per barrel.
Spot gold rose 1.4% to $2,323.68 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Natalia Kniajevic and Liz Capo McCormick.
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