Stock Bull Run Powers Ahead After Blockbuster Jobs: Markets Wrap

(Bloomberg) — The stock market ended 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.

Most Read from Bloomberg

All major groups in the S&P 500 gained, with the gauge rising more than 1%. 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 urgency for the Federal Reserve to start easing policy.

That triggered another hawkish reprice in the bond market. Treasury yields climbed, with traders dialing back their projections for Fed cuts in 2024 to about 65 basis points — or less than what the central bank forecast last month.

Never miss an episode. Follow the Big Take podcast on iHeart, Apple Podcasts, Spotify or wherever you listen. Read the transcript.

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, though Friday’s advance didn’t prevent the gauge from notching its worst week since January. Meta Platforms Inc. led gains in megacaps. Tesla Inc. closed away from session lows as Elon Musk denied a report saying the carmaker had called off plans for a less-expensive vehicle.

Story continues

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

“It’s hard to find anything wrong with the March Jobs report,” said Steve Wyett at BOK Financial. “The only people who might be disappointed in today’s report are those looking for relief from Fed rate cuts. We still expect the next move from the Fed to be to lower rates, but there is little sense of urgency at the moment.”

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.

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

“If this Fed is continuously overly data dependent, then maybe we don’t get cuts,” El-Erian, the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, said on Bloomberg Television. “But I am hoping that they will see through the backward-looking data and look forward.”

Traders ceased fully pricing in a Fed rate cut before September after the March employment report. Swap contracts that predict the central bank’s rate decisions trimmed the probability of rate cut in June to about 52%. For July, the probability dropped below 100%.

Fed Bank of Dallas President Lorie Logan said it’s too soon to consider cutting 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 her concern about potential upside risks to inflation, reiterating it’s “still not yet” time to lower rates.

Jerome Powell has said strong hiring on its own isn’t enough to delay policy easing, 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.

“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.”

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.

“Our base case remains that the Fed will cut rates in June…