Stocks Move Lower as Investors Check Their Rate Expectations

April 5, 2024

The second quarter got off to a volatile start as bond yields spiked and traders lowered their expectations over the number and timing of Fed rate cuts. Several Fed speakers this week pushed back on the idea that rate cuts are imminent, causing both the equity and bond markets to fall. The Dow Jones Industrial Average had a tough session on Thursday, swinging more than 860 points between its highs and lows before closing the day down 530 points. However, equity markets recovered most of Thursday’s losses as investors cheered Friday’s jobs report showing 303K new hires. Bond markets dipped on the labor report since it suggests that strong labor demand will bolster wage growth and spending over which the Fed remains wary. As a result, the 10-year Treasury yield rose to 4.36%. The manufacturing and services reports released earlier in the week further confirmed the economy is still expanding at a solid rate. For the week, the Dow slipped -2.27%.

Payrolls Jump

The March payrolls report delivered a blowout print for the labor market. Businesses added 303K new hires, well above estimates of 200K. Meanwhile, the unemployment rate dropped to 3.80% from 3.90% the previous month. Job growth was broad-based with healthcare, government, and construction jobs leading the way higher. Construction in particular showed a healthy gain, adding 39K new hires which was double its average monthly gain over the last 12 months. Wage gains also remained healthy, accelerating 0.30% during the month from February’s 0.20% gain. In another encouraging sign for the jobs market, the labor force participation rate rose from 62.50% to 62.70%. Overall, it was a good print but it does cloud the water for those that have been hoping for a rapid series of cuts from the Fed.

Manufacturing Rebounds While Services Remains in Expansion

The ISM Manufacturing Index rose to 50.3 in March, up from 47.8 in February. Numbers above 50 indicate expansion while those below signal contraction. March’s reading marked the first time in 17 months the manufacturing sector has expanded. New orders, production, and employment all rose during the month. However, in a troubling sign for goods inflation, the prices index, a measure of inflation, rose 3.3 points to 55.58. The increase in the overall manufacturing index is encouraging because it now means that both manufacturing and services are expanding. Manufacturing should get an additional boost from reduced borrowing costs and improving demand later this year. On the services side of the economy, the ISM Services Index slipped to 51.4 in March from 52.6 in February. The slower growth was ironically due to faster supplier deliveries and lower new orders. Supplier delivery time is inversely related to services demand health because when demand is high, suppliers typically have difficulty and deliver more slowly. Services inflation delivered a positive message with the prices index falling -5.2 points for the month – the lowest reading since March 2020. Overall, businesses remain upbeat on the economy, citing improving demand and optimism that lower rates will stimulate greater activity in the second half.

Final Thoughts

Q2 kicked off with a little more volatility than perhaps we’ve gotten used to, but the underlying narrative remains all about the timing and number of rate cuts for 2024. The economy continues to show incredible resilience, which is a good problem to have in the grand scheme of things. To the degree there was handwringing over higher bond yields and oil prices and the strength in the labor report, the real issue is the bearing those have on inflation itself. Next week we will get a glimpse into March’s CPI. The expectation is that the headline reading will rise due to the increase in oil prices, but the core reading is poised to tick lower slightly. January and February’s readings were stronger than expected and we’ll have to wait and see what March has in store, but it is likely to be a bumpy downward trend as the Fed has said they expect. The first trading week of Q2 was a little rocky but the underlying story was more of the same.  

The Week Ahead

Traders will pour over key reports on consumer and producer prices as well as the latest FOMC meeting minutes

Moon Shadow: The 2024 Solar Eclipse

It’s almost here. On Monday, April 8th, the U.S. will fall under the path of a total solar eclipse. The celestial event is rare for many reasons, but especially because it will include major cities such as Dallas, Indianapolis, Cleveland, and Buffalo as the eclipse crosses into the United States from Mexico before passing over Canada. Additionally, all of the continental U.S. will experience at least a partial eclipse. Solar eclipses occur only when the sun, moon, and Earth align, and when the moon passes between the Earth and the sun, temporarily blocking the sun’s light and casting a shadow on the Earth.

Two to five solar eclipses occur each year on average, but total solar eclipses occur only about once every 18 months somewhere on Earth. They are often in remote, hard-to-access areas or in open seas, so having a total solar eclipse that will cross 13 U.S. states is pretty amazing. For most Americans, this is the best chance to see a solar eclipse in our lifetimes.

The path of Monday’s eclipse will travel through Texas, Oklahoma, Arkansas, Missouri, Illinois, Kentucky, Indiana, Ohio, Pennsylvania, New York, Vermont, New Hampshire, and Maine. The next visible total solar eclipse to cross over the U.S. will take place in 20 years on Aug. 23, 2044, according to NASA, and its path of totality will only touch three states (Montana, North Dakota and South Dakota).  A list of the dates and the maps for every total eclipse for the next 50 years is available from Time magazine here.

To see the full eclipse on Monday, viewers must be in the path of totality (total darkness), which encompasses a band that stretches up to 115 miles wide. Skywatchers in the continental U.S. who are outside the path of totality will still be able to see a partial solar eclipse in which the moon only covers part of the sun – it will appear as if the moon is taking a bite out of the sun.

The timing and duration of the total solar eclipse will be around four minutes depending on where observers are located inside the path of totality. During totality, the sky will darken as if it’s dusk or dawn. Viewers may feel a roughly 10-degree drop in temperature when the sun disappears from view, according to NASA.

The total duration for all phases of the eclipse, however, lasts for hours. The event begins with a partial eclipse where the moon’s shadow slowly moves across the sun’s face during the approach to totality, causing the sun to appear like a sharpening crescent. In Dallas, the partial eclipse begins at 12:23pm Central Time and totality will be at 1:40pm, with totality lasting 3 minutes and 52 seconds. The eclipse will end at 3:02pm for viewers in Dallas.

Path of Totality: the 2024 Total Solar Eclipse

About 31.6 million people live within the 115-mile wide path of Monday’s eclipse, and a little less than half of the U.S. population lives within 200 miles driving distance of the path of totality. During the 2017 eclipse, it is estimated around 5 million people hit the roads, and those number are expected to be much higher this year. April 8th may very well be one of the worst traffic days in national history.

Viewers are reminded not to look directly at the eclipse without protective eclipse glasses which are available from numerous retailers, but caveat emptor — or buyer beware – because some viewing glasses are being sold with false safety claims. NASA has recommended viewers find a pair of certified ISO 12312-2 compliant eclipse glasses to safely enjoy the eclipse.

The total solar eclipse has been described as one of the most amazing sights and experiences. We hope you have an opportunity to witness this historical astronomical event.