Volatility returned Monday and bond yields spiked as market participants adjusted their bets on when the Federal Reserve will start cutting interest rates. Last week's blowout jobs report, as well as upcoming inflation data and scheduled commentary from Fed policymakers, made for a choppy session.
The March jobs report released last week "eclipsed all expectations," notes Deutsche Bank, adding to the evidence that the Federal Open Market Committee (FOMC) need not rush to cut interest rates.
"While the March employment strength and recent re-acceleration in labor income growth reinforce Fed officials' lack of urgency to begin normalizing rates, the improving labor supply narrative that Chair Powell has recently emphasized remains well supported by the latest data," wrote Brett Ryan, senior U.S. economist at Deutsche Bank.
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Data from the Bureau of Labor Statistics on Friday showed the U.S. added 303,000 new jobs in March – well above economists' expectations for 200,000. Additionally, the unemployment rate edged down to 3.8% from 3.9%.
One positive data point helping support calls for the Fed to start cutting rates was that average hourly earnings – a measure of inflation – rose at their slowest annual rate since June 2021. Still, the 0.3% month-over-month rise in wages was quicker than the 0.1% increase seen in February.
The yield on the benchmark 10-year Treasury note spiked to a 2024 high Monday as markets adjusted to the possibility that rates would remain higher for longer. As of April 8, futures traders assigned a 51% probability to the first quarter-point rate cut coming in June, down from 57% a week, ago, according to CME Group's FedWatch Tool.
At Monday's close, the Dow Jones Industrial Average was down 0.03% at 38,892, the S&P 500 was off 0.4% at 5,202, and the Nasdaq Composite was up 0.3% to 16,253.
CPI and earnings season on deck
Looking ahead, there are a few things investors will be paying close attention to in the day ahead. One is oil prices. Crude futures are up nearly 22% for the year to date, which "threatens the 'inflation is falling' narrative and has driven expectations higher," says Liz Young, head of investment strategy at SoFi.
Inflation will be front and center on the economic calendar, with the March Consumer Price Index (CPI) set for release Wednesday morning.
And finally there's earnings season. While this week's earnings calendar is relatively light, Friday's results from several big banks, including JPMorgan Chase (JPM), mark the start of the first-quarter reporting season.
Telsa jumps on robotaxi news
In single-stock news, Tesla (TSLA) gained 4.9% after CEO Elon Musk said that the electric vehicle (EV) maker would debut a robotaxi on August 8. Shares in Telsa gained about $25 billion in market value on the news.
Monday's TSLA rally followed Friday's fade, which was precipitated by a Reuters report suggesting the electric vehicle maker is scrapping plans for a low-cost car. In a post on X, Musk's social media platform, the Tesla CEO wrote "Reuters is lying (again)."
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