Market Volatility Returns as Investors Adjust Bets on Fed Rate Cuts
On Monday, volatility returned to the markets as bond yields spiked and investors adjusted their bets on when the Federal Reserve will start cutting interest rates. Last week’s blowout jobs report, along with upcoming inflation data and scheduled commentary from Fed policymakers, created a choppy trading session.
The March jobs report, which exceeded all expectations, has given the Federal Open Market Committee (FOMC) reason to pause on cutting interest rates. According to Deutsche Bank, the strong employment numbers and labor income growth suggest that Fed officials are in no rush to normalize rates.
Despite the positive employment data, there are still concerns about inflation. The Bureau of Labor Statistics reported that the U.S. added 303,000 new jobs in March, well above economists’ expectations. However, average hourly earnings rose at their slowest annual rate since June 2021, indicating some inflationary pressures.
The spike in bond yields on Monday reflected the market’s adjustment to the possibility of higher rates in the near future. Futures traders now assign a 51% probability to the first rate cut coming in June, down from 57% the previous week.
In terms of market performance, the Dow Jones Industrial Average closed down 0.03%, the S&P 500 was off 0.4%, and the Nasdaq Composite was up 0.3%.
Looking ahead, investors will be closely watching oil prices, inflation data, and the start of earnings season. Crude oil futures are up nearly 22% year-to-date, which could impact inflation expectations. The March Consumer Price Index (CPI) is set for release on Wednesday, and big banks like JPMorgan Chase will kick off the first-quarter earnings season on Friday.
In single-stock news, Tesla made headlines after CEO Elon Musk announced plans to debut a robotaxi on August 8. The news sent Tesla shares soaring, adding $25 billion in market value. However, the stock fell later in the day following reports that the company may be scrapping plans for a low-cost car.
Overall, the market remains sensitive to economic data and Fed policy signals, with investors bracing for potential rate cuts in the coming months. Stay tuned for more updates as the situation continues to evolve.
