Stock bull surges ahead after trending posts: Markets wrap

(Bloomberg) — The stock market ended the week on a positive note after a strong jobs report suggested the U.S. economy will continue to support U.S. companies — even if it means interest rates will likely continue to rise.

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All major groups in the S&P 500 rose, with the index rising more than 1%. Wall Street decided to look at the glass as half full on Friday based on the premise that if the economy was still very strong, there would be no real urgency for the Federal Reserve to start easing policy.

This led to another aggressive repricing in the bond market. Treasury yields rose, with traders backing down their expectations for Fed cuts in 2024 to about 65 basis points — or less than what the central bank expected last month.

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US jobs rose by 303,000 in March, beating all estimates. The unemployment rate fell to 3.8%, wages grew at a strong rate, and labor force participation rose, underscoring the strength of the labor market driving the economy.

“Bang! We have to see employment rates increase, and interest rates have to be cut,” said George Mathieu of Key Wealth. “The Fed will likely need to reconsider its current stance of cutting interest rates three times this year. But the reason behind this potential change in situation is bullish: the economy is in good shape.

The S&P 500 surpassed the 5,200 level, although Friday's advance did not prevent the index from posting its worst week since January. Meta Platforms Inc. Gains in giant companies. Tesla Inc. shut down. Far from session lows as Elon Musk denied a report saying the automaker had scrapped plans to buy a less expensive car.

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10-year Treasury yields rose nine basis points to 4.40%. Brent crude oil consolidated above $90 amid geopolitical tensions.

“It's hard to find anything wrong with the March jobs report,” said Steve White of BOK Financial. “The only people who may be disappointed in today's report are those looking for relief from Fed rate cuts. We still expect the Fed's next move will be to cut rates, but there is no sense of urgency at the moment.”

To the extent that consumer spending and corporate profits are more important to investors than when — and how often — the Fed will cut interest rates, stocks could move higher, according to Chris Zaccarelli of the Alliance of Independent Advisors.

“The number of rate cuts and whether they start in June or July is not as important as whether the Fed is in rate-cutting mode or not,” he points out. “In other words, 4, 3 or 2 rate cuts in 2024 are all equally good for the stock market. But if we go to cut rates to zero or raise them, all bets are off and that will be just as bad.”

Friday's jobs report suggests the economy remains resilient even in the face of fading expectations for Fed cuts, says Glenn Smith of GDS Wealth Management.

“The fact that the labor market is so strong shows that companies and the economy are adjusting to higher interest rates,” he noted.

Mohamed El-Erian still expects Fed officials to cut interest rates twice this year, even as a strong jobs report prompts traders to rethink the timing.

“If the Fed was constantly over-reliant on data, we probably wouldn’t get cuts,” El-Erian, president of Queen’s College in Cambridge and a Bloomberg columnist, told Bloomberg TV. “But I hope they see the backwards data and look forward.”

Traders stopped fully pricing in a Fed rate cut before September following the March employment report. Swaps that forecast the central bank's interest rate decisions reduced the probability of a June rate cut to about 52%. In July, the probability dropped to less than 100%.

Dallas Fed President Lori Logan said it was too early to consider cutting interest rates, citing recent high inflation readings and signs that borrowing costs may not be holding back the economy as much as previously thought. Governor Michelle Bowman also expressed concern about potential upside risks to inflation, stressing that “it is not yet time” to cut interest rates.

Jerome Powell said strong hiring on its own is not enough to delay policy easing, but Friday's jobs report — especially when combined with a rise in headline inflation numbers at the start of 2024 — raises the possibility of subsequent or fewer cuts this year.

“There is no labor market weakness that would prompt the Fed to cut quickly, but there is no tightening that would prevent a cut either,” Morningstar's Preston Caldwell said. “The Fed’s decisions at upcoming meetings will depend mainly on inflation data.”

Officials will see new consumer and producer price figures next week, followed by the March reading of their preferred measure of inflation – the personal consumption expenditures price index – before their April 30-May 1 meeting.

“Our rule of thumb remains that the Fed will cut rates in June for a total of three cuts by the end of 2024, but some easing of labor market and inflation data will likely be needed to achieve that,” Brian Rose said. At UBS Global Wealth Management. “Next week, markets will likely focus on March CPI data – which we expect to show a smaller monthly increase than in the previous two months.”

The development of consumer price inflation remains the key determinant of monetary policy easing in the short term – raising risks in next week's CPI report, according to Oscar Munoz and Gennady Goldberg of TD Securities.

“We continue to see the June meeting still live in terms of when the Fed could start cutting rates.”

For TradeStation's David Russell, while a June rate cut may be in jeopardy, next week's CPI number will likely serve as a “bigger test” for the Fed.

“The Bears haven't won yet,” he said.

Wall Street's reaction to jobs data:

Oops, we did it again. Today's employment report showed that the labor market was once again ahead of expectations.

Overall, this report by itself does not change the Fed's plan to cut interest rates, but along with other information it could be used to call for just two cuts in 2024, rather than the three currently expected.

While we still believe the Fed will cut interest rates, this jobs report should indicate that there is no rush and no need for the Fed to rescue the labor market, especially if it will only ignite future inflation.

I still expect a rate cut in June, but I'm waiting for the CPI report on Wednesday. From a fundamental policy perspective, there is little need to start cutting interest rates because the economy is still very strong.

Another payroll report indicates that the economy is going strong and far from recession. Overall, this would postpone any interest rate cuts by the Fed, but easing wage growth means we are not in the middle of a labor market-induced inflation surge.

This is a strong job economy that shows little sign of stopping in the near term. What does it mean for interest rates? There is even less reason for the Fed to feel any sense of urgency in announcing its long-awaited first rate cut.

There's a lot to like about the March employment report. Fed officials can remain confident that they are meeting the maximum staffing component of their dual mandate. The big question is when and if they can start cutting interest rates in the battle against inflation.

We still believe the Fed will begin lockdown cuts later this year to make a soft landing a reality. Especially since some recent data away from payrolls has shown a decline in overall momentum.

Stop me if you've seen this headline before, but we once again have another big win on Jobs.

The reason for the defeat at this point is irrelevant, the main consequence is that the Fed has once again been placed in an impossible situation. The lifeboats that everyone was expecting to lower prices have drifted even further to see us stay in the vast expanse of altitude for much longer.

Aside from next week's headline inflation data, traders will also be focusing on the start of earnings season – with JPMorgan Chase & Co, Wells Fargo & Co and Citigroup due to report their results on Friday.

“Earnings season will likely show a bifurcated market where many companies are thriving, but a growing minority are struggling,” said Yong-Yu Ma of BMO Wealth Management. “This partly reflects the overall economy with lower socioeconomic groups facing greater pressures, but the bifurcation is also a result of rising interest rates and other shifts taking place in the economy.”

Investors pumped $7.1 billion into US stocks during the week ending Wednesday, according to Bank of America strategists who cited EPFR Global data. US equity flows rise annually to $310 billion, the second highest level ever. Technology stocks are worth $73 billion annually, an all-time high.

“The relatively modest pullback in stocks from record levels despite a spike in interest rates and a shift in Fed expectations is a reflection of market resilience,” said Nationwide's Mark Hackett. “The next challenge is earnings season, where the reaction to the news will likely pave the way forward for stocks.”

The company's most prominent features:

• United Airlines Holdings Inc has canceled an investor meeting scheduled for early next month because it would “send the wrong message” to celebrate its performance in the wake of a series of headline-grabbing safety incidents.

• Johnson & Johnson has agreed to acquire Shockwave Medical Inc. For approximately $13.1 billion to enhance its expansion in manufacturing medical devices to treat heart diseases.

• Asked by Meta Platforms Inc. A judge has dismissed the US Federal Trade Commission's antitrust lawsuit seeking to break up the company, saying the agency cannot prove that consumers would be better off without its acquisitions of Instagram and WhatsApp.

• Chesapeake Energy Corp.'s $7.4 billion acquisition of Southwestern Energy Co. has been delayed. Until the second half of the year after antitrust regulators demanded more details from natural gas explorers.

Some key movements in the markets:

Stores

• The S&P 500 rose 1.1% as of 4 p.m. New York time

• The Nasdaq 100 rose 1.3%.

• The Dow Jones Industrial Average rose 0.8%

• MSCI World Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• There was little change in the euro at $1.0835

• There was little change in the pound sterling at $1.2634

• The Japanese yen fell 0.2 percent to 151.64 yen to the dollar

Digital currencies

• Bitcoin fell 0.7% to $67,447.63

• Ethereum fell 0.1% to $3,321.25

Bonds

• The yield on the 10-year Treasury note rose nine basis points to 4.40%.

• The yield on 10-year German bonds rose four basis points to 2.40%.

• The UK 10-year bond yield rose five basis points to 4.07%.

Goods

• West Texas Intermediate crude rose 0.1% to $86.71 a barrel

• Gold in spot transactions rose 1.4 percent to $2,323.68 per ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Natalia Knyazevich and Liz Capo-McCormick.

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