The stock market closed the week on a positive note following a strong jobs report, indicating sustained strength in the U.S. economy despite potential interest rate hikes.  

The S&P 500 saw gains of over 1%. Wall Street remains optimistic, suggesting that the Federal Reserve may not urgently need to adjust its policy. This led to a repricing in the bond market, with Treasury yields rising.  

Jobs Growth and Interest Rate Projections 

U.S. payrolls increased by 303,000 in March, surpassing expectations, with unemployment dropping to 3.8% and wages rising. This period also saw the yield on 10-year Treasury rise to 4.40%, while geopolitical tensions kept Brent oil prices above $90.  

Despite this strong job market performance, Mohamed El-Erian, chief economic advisor at Allianz, projects the Federal Reserve might enact two rate cuts this year. 

Swap contracts, a gauge for predicting Federal Reserve rate moves, have adjusted the likelihood of a June rate cut to around 52%, with July’s probability dropping below 100%. 

Market Performance Overview 

For the week, the S&P 500 retreated by -1.0%, the tech-heavy Nasdaq Composite lost  -0.8%, and the blue-chip Dow slipped by -2.3%. 

Closing Levels on Friday, April 5th, 2024:  

Despite a positive close, the benchmark S&P 500 posted its poorest weekly performance for the year, marking only its fourth downturn in 2024. 

Expectations and Market Sentiment  

Following a selloff on Thursday, the markets recovered strongly on Friday, with 10-year Treasury yields hitting a peak not seen since the previous November. This shift illustrates a dramatic change in rate cut expectations from over 150 basis points at the end of last year to just above 60 basis points now. 

Federal Reserve spokespeople have been active in managing market expectations, advocating for caution regarding immediate rate cuts but signalling potential reductions ahead. The focus among traders has now shifted towards the possibility of 10-year yields reaching 4.5%. 

The CBOE Volatility Index, known as the VIX, closed at its highest level since November on Thursday, before dipping Friday as U.S. stocks climbed. 

The rise aligns with increased protective buying in the options market, primarily hedging against significant market downturns rather than minor pullbacks.  

Despite the weekly loss, the market’s underlying bullish sentiment persists, with investors keen to capitalize on any dips. However, the outlook remains cautious, with potential volatility ahead driven by corporate earnings or CPI data. 

Strategic Considerations in a Volatile Market 

The current market landscape suggests a period of heightened fluctuations, requiring investors to proceed with caution. This dynamic environment, shaped by a mix of economic indicators, policy expectations, and market sentiment, offers both challenges and opportunities for informed investors. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years. 

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