By Claire Ellerhorst, Senior Portfolio Manager, Fifth Third Bank
Major U.S. equity indices closed lower for the first week of the second quarter, with the S&P 500 down slightly less than one percent in total return. The Dow Jones Industrial Average fell more than two percent and the Nasdaq Composite fell 0.8% for the week. All three benchmarks ended the day higher on Friday, but not enough to fully reverse their weekly losses. Yields backed up significantly last week with the 10-year U.S. Treasury yield touching its highest level since November amid stronger employment and manufacturing data. Oil prices also rose for the week, somewhat attributed to escalating geopolitical tensions and fueling concerns about sticky inflation.
Stronger-than-expected U.S. economic data added to evidence that the Federal Reserve may further delay the start of interest rate cuts. Friday’s employment situation report for March showed that employers added more than 300,000 jobs to payrolls last month, well ahead of consensus expectations. The unemployment rate fell slightly to 3.8% as expected and average hourly earnings rose 4.1% from a year earlier, the lowest since June 2021. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index, or the ISM Manufacturing PMI, unexpectedly moved back into expansion territory for the first time since September 2022. The index rose to 50.3 in March, up from 47.8 in February. A reading above a level of 50 indicates expansion in the sector, while a reading below 50 indicates contraction. The new orders component of the index expanded for the just the third time in 22 months. In other economic news, durable goods orders rose slightly less than expected for February. The Job Openings and Labor Turnover Survey, or JOLTS report, showed that job openings edged higher in February, indicating a steady easing in labor market conditions.
As of the end of the week, the market was still pricing in a slightly higher likelihood of a rate cut in June than not. Fed Chair Jerome Powell has said that strong job growth alone is not a reason to be concerned about inflation. Powell has noted he still expects rate cuts this year but needs to see more evidence of the disinflation trend. All eyes will be on the March consumer price index data coming out in the week ahead. Also on the economic calendar is the producer price index report and minutes from the March Federal Open Market Committee meeting.
As always, we’ll be watching and reporting back to you. Thank you.
