(Bloomberg) — The stock market is ending the week on a positive note after a blowout jobs report signaled the US economy will continue to power Corporate America — even if that means the potential for still elevated interest rates.
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Equities climbed after a rough few days that put the S&P 500 on track for its worst week since January. Wall Street decided to look at the glass half full on Friday based on the premise that if the economy is still so strong, there would be no real urge for the Federal Reserve to ease policy.
That triggered another hawkish repricing in the bond market. Treasury yields climbed, with traders paring back bets of a cut in June or July — suggesting they see a greater chance of fewer than three reductions this year.
US payrolls swelled by 303,000 in March, topping all estimates. The unemployment rate edged lower to 3.8%, wages grew at a solid clip, and workforce participation rose, underscoring the strength of a labor market that’s driving the economy.
“Bang! Employment up, rate cuts need to come out,” said George Mateyo at Key Wealth. “The Fed will likely need to reconsider its current stance of three rate cuts this year. But, the reason for this likely change in posture is bullish – the economy is doing well.”
The S&P 500 topped 5,200, while the Nasdaq 100 added 1.5%. Treasury 10-year yields advanced six basis points to 4.37%.
“When the job market is so strong and inflation is resilient, why should the Fed cut at all?” said Giuseppe Sette at Toggle AI.
To the extent that consumer spending and corporate profits are more important to investors than how soon — and how many times — the Fed will cut rates, then stocks can move higher, according to Chris Zaccarelli at Independent Advisor Alliance.
“The number of rate cuts and whether they begin in June or July isn’t as important as whether the Fed is in rate-cutting mode or not,” he note. “To put it another way, 4 or 3 or 2 rate cuts in 2024 are all equally good for the stock market. But if we went to zero rate cuts or a rate hike, then all bets are off and that would be categorically bad.”
Friday’s jobs report indicates that the economy remains resilient even in the face of fading expectations of Fed cuts, says Glen Smith at GDS Wealth Management.
“The fact that the labor market is so strong shows that companies and the economy are adapting to high interest rates,” he noted.
“There is no weakness in the job market which would impel the Fed to quickly cut, but no tightness which would prohibit a cut either,” said Preston Caldwell at Morningstar. “Fed decisions in upcoming meetings will hinge mainly on the inflation data.”
Fed Bank of Dallas President Lorie Logan said Friday it’s too soon 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. She’s is among a sizeable contingent of policymakers who expect two or fewer rate cuts in 2024.
Jerome Powell has said strong hiring on its own isn’t enough to delay rate cuts, but Friday’s jobs report — especially when paired with a pickup in key inflation numbers at the start of 2024 — raise the possibility of later or fewer cuts this year.
Officials will see fresh figures on consumer and producer prices next week, followed by the March reading of their preferred inflation gauge — the personal consumption expenditures price index — before their April 30-May 1 meeting.
“The evolution of consumer price inflation remains the key determinant of easing in the short term, which raises the stakes for next week’s CPI report,” said Oscar Munoz and Gennadiy Goldberg at TD Securities. “We remain of the view that the June meeting remains live in terms of when the Fed could begin to cut rates.”
“The economy is strong and getting stronger, consistent with some of the recent data,” said
To David Russell at TradeStation, while a June rate cut might be at risk, next week’s CPI number will probably be a “bigger litmus test” for the Fed.
“The bears haven’t won yet,” he said.
More Comments on Jobs:
I still forecast a rate cut in June, but I’m waiting for that Wednesday CPI report shows. From a basic policy perspective there’s very little need to start cutting rates because the economy is still so strong.
Oops, we did it again. Today’s employment report showed a labor market that was again ahead of expectations.
On the whole, this report doesn’t by itself alter the Fed’s rate cut plan, but along with other information could be used to argue for only 2 cuts in 2024, instead of the currently expected 3 cuts.
While we still think the Fed will cut, this jobs report should indicate that there is no rush and no need for the Fed to save the labor market, especially if it will just reignite inflation down the road.
Another blowout payroll report suggests the economy is running strong and far from recession. On balance, this would push out any rate cuts by the Fed, but easing wage growth means we’re not in the middle of a labor-market induced inflation surge.
This is a strong labor economy that shows little sign of stalling in the near term. What’s it mean for interest rates? There’s even less reason for the Fed to feel any sense of urgency in announcing that much-anticipated first rate cut.
There’s a lot to like in the March employment report. The economy continues to display remarkable resilience, defying high interest rates and fears of a substantial slowdown.
Federal Reserve officials can remain confident that they’re satisfying the maximum employment component of their dual mandate. The big question is when and if they can begin to cut interest rates in the battle against inflation.
Although the hotter-than-expected print raises questions about the timing for the Fed’s first interest rate cut, continued labor market strength remains encouraging for the economy. Additionally, wage pressure came in line with expectations, proving some comfort in a hot report.
The above expectation headline number of 300k+ shows that there is still strength in the labor market. That said, it is no longer overheating given average hourly earnings was in line and that participation rate ticked up slightly.
We still believe that the Fed will begin insurance cuts later this year to make the soft landing a reality. Especially given that some of the recent data away from payrolls has shown a decline in macro momentum.
Stop me if you’ve seen this headline before, but we have yet again another massive jobs beat. The reason for the beat at this point is irrelevant, the main take away is that once again the Fed is put in an impossible position. The rate cut lifeboats everyone was expecting have drifted further out to see and we are staying at the vast expanse of higher for longer.
While the jobs number came in stronger than expected, the unemployment rate and average hourly earnings came in line, so there hasn’t been much movement for rate cut expectations in June, which remain around 60%. Besides the good news from the jobs number, participation rose, and average hours worked rose which could help boost real income and spending in the economy without driving up inflation.
Today’s jobs figures are stronger than expected, indicating that there is a high level of demand in the labor market. The Fed recently demonstrated its optimism surrounding employment by raising its longer-run expectation for the so-called neutral rate, which is the Goldilocks interest rate – low enough to avoid hurting the economy or increasing unemployment, but high enough to keep inflation at bay.
Corporate Highlights:
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Tesla Inc. shares pared a steep drop in intraday trading after Chief Executive Officer Elon Musk denied a report saying the carmaker had canceled plans for a less-expensive vehicle.
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Johnson & Johnson agreed to acquire Shockwave Medical Inc. for about $13.1 billion to bolster its expansion into making medical devices to treat heart disease.
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Meta Platforms Inc., the parent company of Facebook and Instagram, is changing its policies to allow more AI-generated content to stay up on its sites, even if that content is misleading.
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Chesapeake Energy Corp.’s $7.4 billion takeover of Southwestern Energy Co. has been delayed until the second half of the year after antitrust regulators demanded more details from the natural gas explorers.
Some of the main moves in markets:
Stocks
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The S&P 500 rose 1.3% as of 12:31 p.m. New York time
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The Nasdaq 100 rose 1.5%
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The Dow Jones Industrial Average rose 1%
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The MSCI World index rose 0.5%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0836
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The British pound was little changed at $1.2631
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The Japanese yen fell 0.2% to 151.60 per dollar
Cryptocurrencies
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Bitcoin was little changed at $67,901.51
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Ether fell 0.2% to $3,320.37
Bonds
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The yield on 10-year Treasuries advanced six basis points to 4.37%
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Germany’s 10-year yield advanced four basis points to 2.40%
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Britain’s 10-year yield advanced five basis points to 4.07%
Commodities
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West Texas Intermediate crude rose 1% to $87.44 a barrel
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Spot gold rose 1.5% to $2,326.39 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Natalia Kniazhevich and Liz Capo McCormick.
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