S&P 500 Rises 0.1%, Fed Signals Rate Cuts, Jobs Up 184K

Powell signals rate cuts amidst a strong economy, boosting S&P 500 and Nasdaq, with a 62% chance of a June cut anticipated.

By Athena Xu

4/3, 16:44 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF

Key Takeaway

  • S&P 500 rose 0.1% after Fed Chair Powell's reassurance on likely interest-rate cuts, despite a strong economy.
  • Interest-rate derivatives traders see a 62% chance of a rate cut by June; 10-year Treasury yield fell to 4.354%.
  • ADP reported the U.S. added 184,000 jobs in March, with the labor market loosening potentially hastening rate cuts.

Fed's Rate Cut Outlook

Federal Reserve Chair Jerome Powell's recent comments have reassured investors about the likelihood of interest rate cuts later this year, despite a strong economy. This announcement came alongside the S&P 500 edging higher, breaking a two-day losing streak, and the Nasdaq Composite gaining 0.2%. However, the Dow Jones Industrial Average experienced a slight dip. Powell emphasized that the current economic strength does not alter the central bank's expectation for rate cuts, citing a rebalancing labor market and inflation moving towards the 2% target on a "sometimes bumpy path."

Economic Indicators and Market Reactions

Recent data, including the Institute for Supply Management’s non-manufacturing survey and ADP's job addition report, indicate a growing economy at a measured pace. The labor market's dynamics, with hiring and quitting rates returning to pre-pandemic levels, suggest a potential for rate cuts sooner than investors might expect. Interest-rate derivatives traders are now pricing in a 62% probability of a rate cut by the Fed in its June policy meeting. This anticipation has led to a rise in bond prices and a slight decrease in yields, with the benchmark 10-year Treasury yield settling at 4.354%.

Stock Market Performance and Commodity Prices

The stock market has shown resilience, with the S&P 500 and other major indexes posting gains. This bullish sentiment is supported by a combination of a resilient economy, slowing inflation, and the Fed's signals on future rate cuts. Commodity prices, such as crude oil and gold, have also seen movements, with gold prices reaching a record high. This market behavior underscores the complex interplay between economic indicators, central bank policies, and investor sentiment.

Street Views

  • Brian Nick, Macro Institute (Neutral on the U.S. economy and interest rates):

    "Despite the strong jobs growth, hiring and quitting rates have slipped to levels last seen before the onset of the pandemic. That makes a rate cut in the next several months more likely than investors currently forecast."

  • Emerson Ham III, Sound View Wealth Advisors (Cautiously Optimistic on Nasdaq stocks given rising bond yields):

    "If interest rates continue on this upward trajectory, the value of these Nasdaq stocks probably have to go down. That’s just the math of it."

  • Joseph Zappia, LVW Advisors (Bullish on U.S. stock market):

    "We continue to think we’re relatively early innings in terms of what the U.S. stock market can do."

Management Quotes

  • Jerome Powell, Federal Reserve Chair:

    "A strong economy hasn’t changed the central bank’s expectation that interest rate cuts will be warranted later this year."