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  • Jobs report shows 236,000 gain in March — lifting 2023 total above 1 million — but U.S. labor market shows hints of cooling

    Jobs report shows 236,000 gain in March — lifting 2023 total above 1 million — but U.S. labor market shows hints of cooling

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    The numbers: The U.S. added a robust 236,000 new jobs in March, defying the Federal Reserve’s hopes for a big slowdown in hiring as the central bank struggles to tame inflation. The consensus economist forecast called for a nonfarm-payrolls expansion of 238,000.

    The solid increase in employment last month followed a revised 326,000 gain in February and a gain of 472,000 in January.

    While the increase in hiring was the smallest monthly rise in more than two years, the number of jobs created last month was much greater than is typical.

    The U.S. economy has shown recent signs of stress.

    The unemployment rate, meanwhile, slipped to 3.5% from 3.6% as more people searched for and found work. That’s another sign of labor-market vigor.

    There was some good news in the report for the Fed, though.

    Wage growth continued to moderate closer to level the Fed would prefer. Hourly wages increased a mild 0.3% last month, the government said Friday.

    The increase in pay over the past year also slowed again to a nearly two-year low of 4.2% from 4.6% in February.

    What’s more, the share of people working or looking for work rose a tick to 62.6%. That’s the highest labor-force participation rate since February 2020, the last month before the pandemic’s onset.

    When more people look for work, companies don’t have to compete as hard for workers via higher pay.

    Emerging evidence of slack in a muscular U.S. labor market could encourage the Fed to take a breather after a rapid series of interest-rate increases.

    Still, the U.S. has added a whopping 1 million–plus new jobs in the first three months of the year. The labor market is not cooling off as much as the Fed would like.

    “ The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s. ”

    Stock-index futures rallied after the report, though the stock market itself is officially closed due to the Good Friday holiday.

    See: Why Good Friday complicates how stock-market traders will digest March jobs report

    Key details: About one-third of the new jobs created last month — 72,000 — were at service-sector companies such as bars and restaurants whose employment still has not returned to prepandemic levels.

    Americans are going out to eat a lot and spending relatively more on services than on goods.

    Government employment increased by 47,000. Hiring also rose at professional businesses and in healthcare. Retailers cut 15,000 jobs.

    Employment fell slightly in manufacturing and construction, or goods-producing industries, which are under more pressure from rising interest rates.

    The strong labor market has benefited all groups, but especially Black Americans. The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s.

    Big picture: The ongoing tightness in the labor market could inflame inflation and even push the Fed to raise interest rates more than currently forecast to try to get prices under control.

    Higher borrowing costs reduce inflation by slowing the economy, but most Fed rate-hike cycles since World War II have been followed by recession.

    On the flip side, the U.S. economy is starting to show more signs of deterioration due to the series of rapid Fed interest-rate increases since last year.

    Manufacturers have cut production and are arguably already in recession and the much larger service side of the economy is under more stress lately.

    If these trends continue the economy — and inflation — are bound to slow.

    The U.S. is still growing for now, however, and the labor market remains an oasis of strength.

    Low unemployment and rising wages have allowed Americans to keep spending. And so far they’ve keep the economy out of a widely predicted recession.

    Looking ahead: “The U.S. labor market is losing some momentum, but remains far too vibrant for the Fed to pause [its rate-hike campaign] in May,” said senior economist Sal Guatieri at BMO Capital Markets

    “Although job growth is gradually slowing, it remains too strong for the Federal Reserve,” said Sal Guatieri of PNC Financial Services.

    See: Traders see little chance interest rates will end up where Fed thinks in 2023

    Market reaction:  Futures contracts on the Dow Jones Industrial Average
    YM00,
    +0.19%
    rose 64 points, or 0.2%, to 33,723. S&P 500 futures
    ES00,
    +0.24%
    gained 9.75 points, or 0.2%, to 4,141.75. Stock trading resumes again on Monday.

    The yield on the 10-year Treasury
    TMUBMUSD10Y,
    3.404%
    jumped to 3.36%.

    MarketWatch personal finance: U.S. economy added 236,000 jobs in March. Is this your last chance to jump ship?

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  • Jobs report shows 236,000 gain in March — lifting 2023 total above 1 million — but U.S. labor market shows hints of cooling

    Jobs report shows 236,000 gain in March — lifting 2023 total above 1 million — but U.S. labor market shows hints of cooling

    [ad_1]

    The numbers: The U.S. added a robust 236,000 new jobs in March, defying the Federal Reserve’s hopes for a big slowdown in hiring as the central bank struggles to tame inflation. The consensus economist forecast called for a nonfarm-payrolls expansion of 238,000.

    The solid increase in employment last month followed a revised 326,000 gain in February and a gain of 472,000 in January.

    While the increase in hiring was the smallest monthly rise in more than two years, the number of jobs created last month was much greater than is typical.

    The U.S. economy has shown recent signs of stress.

    The unemployment rate, meanwhile, slipped to 3.5% from 3.6% as more people searched for and found work. That’s another sign of labor-market vigor.

    There was some good news in the report for the Fed, though.

    Wage growth continued to moderate closer to level the Fed would prefer. Hourly wages increased a mild 0.3% last month, the government said Friday.

    The increase in pay over the past year also slowed again to a nearly two-year low of 4.2% from 4.6% in February.

    What’s more, the share of people working or looking for work rose a tick to 62.6%. That’s the highest labor-force participation rate since February 2020, the last month before the pandemic’s onset.

    When more people look for work, companies don’t have to compete as hard for workers via higher pay.

    Emerging evidence of slack in a muscular U.S. labor market could encourage the Fed to take a breather after a rapid series of interest-rate increases.

    Still, the U.S. has added a whopping 1 million–plus new jobs in the first three months of the year. The labor market is not cooling off as much as the Fed would like.

    “ The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s. ”

    Stock-index futures rallied after the report, though the stock market itself is officially closed due to the Good Friday holiday.

    See: Why Good Friday complicates how stock-market traders will digest March jobs report

    Key details: About one-third of the new jobs created last month — 72,000 — were at service-sector companies such as bars and restaurants whose employment still has not returned to prepandemic levels.

    Americans are going out to eat a lot and spending relatively more on services than on goods.

    Government employment increased by 47,000. Hiring also rose at professional businesses and in healthcare. Retailers cut 15,000 jobs.

    Employment fell slightly in manufacturing and construction, or goods-producing industries, which are under more pressure from rising interest rates.

    The strong labor market has benefited all groups, but especially Black Americans. The Black unemployment rate fell to 5% last month, the lowest level since records began being kept in the early 1970s.

    Big picture: The ongoing tightness in the labor market could inflame inflation and even push the Fed to raise interest rates more than currently forecast to try to get prices under control.

    Higher borrowing costs reduce inflation by slowing the economy, but most Fed rate-hike cycles since World War II have been followed by recession.

    On the flip side, the U.S. economy is starting to show more signs of deterioration due to the series of rapid Fed interest-rate increases since last year.

    Manufacturers have cut production and are arguably already in recession and the much larger service side of the economy is under more stress lately.

    If these trends continue the economy — and inflation — are bound to slow.

    The U.S. is still growing for now, however, and the labor market remains an oasis of strength.

    Low unemployment and rising wages have allowed Americans to keep spending. And so far they’ve keep the economy out of a widely predicted recession.

    Looking ahead: “The U.S. labor market is losing some momentum, but remains far too vibrant for the Fed to pause [its rate-hike campaign] in May,” said senior economist Sal Guatieri at BMO Capital Markets

    “Although job growth is gradually slowing, it remains too strong for the Federal Reserve,” said Sal Guatieri of PNC Financial Services.

    See: Traders see little chance interest rates will end up where Fed thinks in 2023

    Market reaction:  Futures contracts on the Dow Jones Industrial Average
    YM00,
    +0.19%
    rose 64 points, or 0.2%, to 33,723. S&P 500 futures
    ES00,
    +0.24%
    gained 9.75 points, or 0.2%, to 4,141.75. Stock trading resumes again on Monday.

    The yield on the 10-year Treasury
    TMUBMUSD10Y,
    3.404%
    jumped to 3.36%.

    MarketWatch personal finance: U.S. economy added 236,000 jobs in March. Is this your last chance to jump ship?

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  • U.S. economy forecast to create 238,000 jobs in March. The Fed wouldn’t be happy.

    U.S. economy forecast to create 238,000 jobs in March. The Fed wouldn’t be happy.

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    Normally a big increase in new U.S. jobs is cause for celebration. Not right now.

    The Federal Reserve sees a tight labor market as a big obstacle in getting high inflation under control and wants hiring to slow as soon as possible, but it might not get its wish in March.

    …

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  • Fed’s Bullard doesn’t see a looming credit crunch that would push economy into a recession

    Fed’s Bullard doesn’t see a looming credit crunch that would push economy into a recession

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    In the wake of the collapse of Silicon Valley Bank, conventional wisdom has been that banks will cut lending, known as a credit crunch, that will damage the economy.

    On Thursday, St. Louis Federal Reserve President James Bullard said he was “less enamored’ with this forecast.

    “Only about 20% of lending is going through the banking system…

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  • S&P 500 books back-to-back loss as recession worries return

    S&P 500 books back-to-back loss as recession worries return

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    U.S. stocks closed mixed on Wednesday as weaker economic data weighed on equities and focus among investors returned to recession concerns. The Dow Jones Industrial Average
    DJIA,
    +0.24%
    gained about 80 points, or 0.2%, ending near 33,482, according to preliminary FactSet data, but the S&P 500 index
    SPX,
    -0.25%
    and Nasdaq Composite Index
    COMP,
    -1.07%
    fell 0.3% and 1.1%, respectively. That left the S&P 500 down for two straight days and the Nasdaq lower for a third day in a row. Investors were focused on an ADP report showing that private-sector employers added 145,000 jobs in March, well below the 210,000 expected by economists surveyed by The Wall Street Journal. Also, the bellwether Institute for Supply Management’s service sector activity index showed business conditions at U.S. companies fell to a three-month low of 51.2% in March.

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  • U.S. private-sector ‘pulling back’ adding 145,000 jobs in March, ADP

    U.S. private-sector ‘pulling back’ adding 145,000 jobs in March, ADP

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    The numbers: U.S. private payrolls climbed by 145,000 in March, according to the ADP National Economic report released on Wednesday. 

    Economists polled by The Wall Street Journal had forecast a gain of 210,000 private sector jobs.

    The private sector added a revised 261, 000 jobs in January.

    Key details: Service sector providers added 75,000 jobs in March. Leisure and hospitality added 98,000 workers. Meanwhile, goods producers added 70,000 jobs. Manufacturing shed 30,000 jobs.

    By company size, small businesses added 101,000 private-sector jobs in March while medium businesses added 33,000. Large-sized businesses added 10,000 jobs.

    Pay growth decelerated for both job stayers and job changers, ADP said.

    For job stayers, year-over-year gains fell to 6.9% from 7.2%. For job changers, pay growth was 14.2%, down from 14.4%.

    Big picture: The job market has been strong, with jobless claims trending below 200,000. Companies seem wary of letting workers go.

    Economists are forecasting that the U.S. Labor Department’s employment report will show the economy added 238,000 jobs in March. That estimate includes government jobs. If the data comes in as expected, it could show over one million jobs created in the first three months of the year.

    What ADP said: “Our March payroll data is one of several signals that the economy is slowing,” said Nela Richardson, chief economist, ADP. “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”

    Market reaction: Stocks
    DJIA,
    +0.24%

    SPX,
    -0.25%
    were set to open lower after the data. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.282%
    fell to 3.32% after the data was released.

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  • Dow ends about 200 points lower as economy shows more signs of sputtering

    Dow ends about 200 points lower as economy shows more signs of sputtering

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    Major U.S. stock indexes fell on Tuesday, with the Dow and S&P 500 both snapping a 4-session win streak, as economic data showed more signs of a sputtering U.S. economy. The Dow Jones Industrial Average
    DJIA,
    -0.59%
    fell about 198 points, or 0.6%, ending near 33,403, while the S&P 500 index
    SPX,
    -0.58%
    shed 0.6% and the Nasdaq Composite Index
    COMP,
    -0.52%
    fell 0.5%, according to preliminary FactSet data. Investors were eyeing less robust economic data out Tuesday. The number of U.S. job openings in February fell to a 21-month low, while orders for manufactured goods fell for the third time in the past four months. Gold prices
    GC00,
    -0.04%
    were flirting with a return to record territory, trading above $2,000 an ounce. The 2-year Treasury rate
    TMUBMUSD02Y,
    3.854%
    stayed below 4% at 3.84%.

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  • The tension at the heart of the ECB

    The tension at the heart of the ECB

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    Press play to listen to this article

    Voiced by artificial intelligence.

    FRANKFURT ― The markets are jittery and inflation still needs taming. Coming together, those two things put the European Central Bank in a real bind.

    Fight one fire and it could cause the other to flare. The ECB can keep raising interest rates to try to get inflation under control, but that risks fueling financial market tensions. Conversely, it can give banks some breathing space by slowing its rate-hiking, but that carries the danger of prolonging the region’s economic malaise.

    Frankfurt’s official line is that it can do both with no serious consequences. Many economists in the eurozone don’t buy that.

    In private, it’s a dilemma that splits the ECB’s decision-makers, and even in public differences of opinion are bubbling to the surface. Here’s what’s at stake:

    Why is the ECB raising rates?

    The idea is that increasing interest rates subdues inflation because it makes consumers and businesses less likely to borrow ― so that results in reduced spending.

    As inflation has started to pick up since last summer, the ECB has raised interest rates at a record pace. They’ve gone from -0.5 to 3 percent as the annual rate of price rises has surged to a eurozone record 10.6 percent in October.

    The Bank tries to keep inflation at 2 percent so it’s currently way off target.

    How this contributed to the crisis

    The unpleasant side effect is that with rising borrowing costs (because of higher interest rates), the value of bonds that banks hold usually fall. This gives investors a bad case of the jitters. After the collapse in March of lenders like Silicon Valley Bank and Credit Suisse ― though their problems seemed unconnected ― it was this that prompted concerns they might not be the only institutions with troubles, and fueled contagion fears around the globe.

    But Lagarde plowed on regardless

    The ECB remained unfazed in the face of emerging banking troubles: It delivered a previously signaled 0.5 percentage-point rate increase in March, less than a week after SVB failed and at a time when Swiss banking giant Credit Suisse was teetering.

    Following that decision, ECB President Christine Lagarde stressed that she sees no trade-off between ensuring price stability and financial stability.  

    In fact, she said the Bank could continue to lift rates while addressing banking troubles with other tools.

    The case against

    Many economists disagree with Lagarde that the battle for price stability can be pursued without risking financial stability.

    The ECB delivered 0.5 percentage-point rate increase in March, less than a week after SVB failed | Patrick T. Fallon/AFP via Getty Images

    Claiming so “should be a career-ending statement,” said Stefan Gerlach, chief economist at EFG Bank in Zurich and a former deputy governor of the Central Bank of Ireland. “This is the idea of the ‘separation principle’ of 2008 revisited. That wasn’t a good idea then, and isn’t now either,” he added.

    What’s the separation principle?

    In 2008, at the start of the financial crisis, as well as in 2011, when the sovereign debt crisis hit, the ECB adhered to the idea that interest rates could be used to ensure price stability at the same time as other measures, such as generous liquidity injections, could ease market tension.

    But this just added to the problems and had to be unwound quickly.

    This time around, the Portuguese member on the ECB Governing Council, whose country suffered particularly under the consequences of the sovereign debt crisis, is less blasé than Lagarde.

    “Our history tells us that we had to backtrack a couple of times already during processes of tightening given threats to financial stability. We cannot risk that this time,” Mario Centeno told POLITICO in an interview. 

    The case for Lagarde

    After the initial fears that troubles could spread across the eurozone, investor nerves have calmed and bank shares started to recover. At the same time, new data showed that underlying inflation pressures kept rising, suggesting that Lagarde and her colleagues were right to stick to their guns ― at least for now.

    If that’s the case, March’s interest rate rise ― what Commerzbank economist Jörg Krämer described as “necessary” investment in the central bank’s credibility ― will have paid off.

    Market turmoil actually helps

    The nervous markets could help the ECB to reach its inflation target without having to raise interest rates as aggressively as previously thought.

    Banks tend to slap an additional risk premium on their lending rates which raises the cost of borrowing money for consumers and business. So banks end up doing part of the tightening job for the central bank.

    ECB Vice President Luis de Guindos suggested as much in an interview released last month, though he cautioned that it was too early to assess how much impact exactly it may have.

    What’s the endgame?

    The challenge for the ECB is to strike the right balance. If it doesn’t it risks either the repeat of 2008-style financial troubles or a return to the stagflationary period (low growth on top of high inflation) that roiled the Continent in the 1970s.

    If it raises rates too aggressively, bank failures followed by a recession risks forcing the ECB into an interest rate U-turn for the third time, creating massive credibility risks. Conversely, if they don’t hike enough, the central bank may lose a grip on inflation, which is its main mandate.

    The only way Lagarde can win is to deliver both price stability and financial stability. In that sense, there is no trade-off ― one without the other just won’t be enough.

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  • Dow, S&P 500 clinch 4-day win streak, energy stocks jump on oil production cuts

    Dow, S&P 500 clinch 4-day win streak, energy stocks jump on oil production cuts

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    The Dow and S&P 500 both closed higher on Monday to kick off April with a 4th straight session of gains, after a group of major global oil nations on Sunday announced surprise production cuts. The Dow Jones Industrial Average
    DJIA,
    +0.98%
    climbed about 326 points, or 1% on Monday, to end near 33,600, according to preliminary FactSet data. The S&P 500 index
    SPX,
    +0.37%
    gained 0.4%, while its energy component outperformed with a 4.9% climb. The Nasdaq Composite Index
    COMP,
    -0.27%
    shed 0.3%. Investors piled into energy stocks after the Organization of the Petroleum Exporting Countries and its allies said Sunday they would in May cut production by more than 1 million barrels a day in an effort to support oil-market stability, including with Saudi Arabia slashing its output by 500,000 barrels a day. May WTI oil future contract
    CLK23,
    +6.44%
    climbed more than 6% to trade above $80 a barrel, the biggest daily gain in more than a year. The Energy Select Sector SPDR Fund
    XLE,
    +4.53%
    rose 4.6%. The 2-year Treasury yield
    TMUBMUSD02Y,
    3.969%
    slumped below 4%, while the 10-year Treasury
    TMUBMUSD10Y,
    3.417%
    rate fell to 3.43%, as traders anticipated that higher oil prices could potentially act as a wretch in the Federal Reserve’s plans to bring inflation down to its 2% annual target.

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  • Fed’s Bullard: Oil price jump may make inflation-fighting more difficult 

    Fed’s Bullard: Oil price jump may make inflation-fighting more difficult 

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    The spike in oil prices after the surprise OPEC+ production cut may make the Federal Reserve’s inflation-fighting job “a little more difficult,” but it is too soon to know for sure, said St Louis Fed President James Bullard, on Monday. “This was a surprise – this OPEC decision – but whether it will have a lasting impact, I think, is an open question,” Bullard said, in an interview on Bloomberg Television. “Oil prices fluctuate around – it is hard to track exactly. Some of that might feed into inflation and make our job a little more difficult,” he added. Bullard said he had already expected higher oil prices due to the recent upgrades to the economic outlook for both China and Europe. The St. Louis Fed president thinks the Fed should raise rates to a range of 5.5%-5.75%. That’s higher than the median Fed forecast of 5%-5.25%. “I think inflation will be stickier,” he said, noting that the Dallas trimmed mean price index, which excludes each month’s volatile components of inflation, was 4.6% in February, unchanged from the prior month.

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  • Manufacturing shrinks for 5th month in a row, ISM finds, with one gauge signaling recession

    Manufacturing shrinks for 5th month in a row, ISM finds, with one gauge signaling recession

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    The numbers: A key barometer of U.S. factories was negative in March for the fifth month in a row, reflecting an ongoing struggle by a key part of the economy to resume growth.

    The Institute for Supply Management’s manufacturing survey dropped to 46.3% from 47.7% in the prior month. That’s the lowest level since May 2020, when the pandemic show down much of the U.S. economy.

    Numbers below 50% signal that the manufacturing sector is contracting. The last time the index fell five months in a row was in 2019, during a trade fight with China.

    The ISM report is viewed as a window into the health of the economy, and it shows growing strains. New orders shrank to a level historically associated with recession, for example.

    Economists polled by the Wall Street Journal had forecast the index at 47.3%.

    Key details:

    • The index of new orders dropped 2.7 points to 44.3%. “Sales a down a bit, and budgets being cut with a greater emphasis on savings,” an executive at a chemical company told ISM.

    • The production barometer edged up 0.5 points to 47.8%.

    • The employment gauge fell 2.2 points to 46.9%, marking the lowest level since early in the pandemic.

    • The price index, a measure of inflation, declined 2.1 points to 49.2%. Inflation is still a big worry, but price increases have slowed sharply since last summer.

    Big picture: Manufacturers have battled supply shortages, high inflation and rising interest rates over the past year.

    While the shortages are clearing up and inflation is slowing, interest rates are still rising, boosting the odds of recession both in the U.S. and abroad.

    The result: The near-term outlook for manufacturers is still quite cloudy. More companies are tackling the problem with hiring freezes or even layoffs.

    “Now companies are facing the reality that demand is not going to come back to support the current level of employment,” said Timothy Fiore, chair of the ISM survey.

    Looking ahead: “The new orders index is very much in recessionary territory, with only one previous occasion over the past 60 years where the index has fallen to that level without an economic contraction following,” noted deputy chief U.S. economist Andrew Hunter of Capital Economics.

    Market reaction: The Dow Jones Industrial Average
    DJIA,
    +0.61%
    and S&P 500
    SPX,
    -0.05%
    rose in Monday trades.

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  • This signal for U.S. stocks bodes well for a rally as some stability returns to the banking sector

    This signal for U.S. stocks bodes well for a rally as some stability returns to the banking sector

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    The U.S. stock market has been flashing an important signal that suggests concerns about the banking sector have dissipated after the sudden collapse of Silicon Valley Bank earlier in March.

    The Cboe Volatility Index
    VIX,
    -1.68%    ,
    a gauge of expected volatility in the S&P 500 index, dropped below the 20 level last week for the first time since March 8, suggesting a return to a lower risk environment that prevailed before Silicon Valley Bank first announced it had to sell securities to strengthen its deteriorating financial position.

    The index, often referred to as Wall Street’s “fear gauge,” was down 1.7% at 18.70 on Friday after rising above 30 on March 13, the first trading day after regulators announced emergency measures to stem fallout from Silicon Valley Bank’s failure.

    “It’s not a normal volatility environment,” said Johan Grahn, head ETF market strategist at AllianzIM. “We’ve spent 95% of trading days in the past 12 months above 20, while we were above 20 only 15% of the time in the 8-year period before the pandemic-driven volatility started in February of 2020.”

    He also noted the VIX topped 30 in one of five days over the past 12 months on average, but only one in 100 days over the same 8-year period before the pandemic. 

    “Now we’re living in those periods as if it’s normal, but it’s not normal based on that history,” Grahn said. 

    Other market analysts also said investors should beware of what comes next.

    Interest rate cuts in 2023 could signal a tanking economy

    The three major U.S. stock indexes ended the month on a positive note with the S&P 500
    SPX,
    +1.44%
    gaining 3.5% and the Dow Jones Industrial Average
    DJIA,
    +1.26%
    up 1.9%, according to Dow Jones Market Data. The Nasdaq Composite
    COMP,
    +1.74%
    advanced 6.7% as volatility in banking-sector stocks ignited a rush into the technology sector.

    See: Are tech stocks becoming a haven again? ‘It’s a mistake,’ say market analysts.

    For the quarter, the Nasdaq Composite rose 16.8%, its best quarterly gain since at least the fourth quarter of 2020, according to Dow Jones Market Data. The S&P 500, meanwhile, rose 7%, and the Dow advanced 0.4% in the first three months of 2023.

    “Those worst fears have been taken off the table, at least for the time being. I think you’re just seeing a reflection in the markets of that fact,” Grahn told MarketWatch via phone.

    “Fed Chairman Jerome Powell came out and started flexing his dovish wings a little bit by taking the banking issues into consideration and now leading the market to believe that maybe he will slow down what previously was communicated as more aggressive rate increases,” he said.

    Stress in the banking sector and a possible credit squeeze has led markets to reprice expectations of future monetary tightening by the Federal Reserve. Traders’ bets are tilted toward a pause in interest rate increases in May, with odds of a 25-basis-point increase at 49%, according to CME FedWatch tool.

    However, Grahn thinks if investors expect rate cuts will happen later this year, that could suggest the economy will tank “very soon” and in a “very painful way.”

    Investors are effectively saying “there will be so much pain coming through the system so that the Fed cannot make an argument that holds water for why they want to keep the rates high,” said Grahn. “The risk sensitivity between what the market is pricing in terms of rate increases and where the Fed is telling the market that they’re going to be is way too wide. And the way that the market can be right is if we have a disastrous couple of months ahead of us.” 

    See: 2023 has been bad for the bears. Here are 5 reasons why it’s going to get even worse.

    Liquidity spigot, back on

    David Waddell, CEO and chief investment strategist at Waddell & Associates, said it has been past bailout reassurances that have stabilized financial markets, because they neutralize the threat of banking stress.

    “Once the Fed turned on the ‘liquidity spigot’ and softened their rhetoric, the market took off, because while crises may destroy investor capital, bailouts create even more,” Waddell told MarketWatch in a phone interview.

    It also bolsters the case for a shallow recession, he said, because the Fed has shown a tendency to over medicate. “The ‘patient’ will be fine,” Waddell said.

    After Silicon Valley Bank failed earlier this month, U.S. Treasury Secretary Janet Yellen ruled out a return to broadscale federal bailouts for banks and emphasized the situation was very different from the 2008 financial crisis, which resulted in unprecedented measures to rescue the nation’s biggest banks. 

    See: Two-year Treasury yields sees biggest monthly drop since 2008 after bank turmoil

    Big moves in Treasurys

    U.S. Treasury yields tumbled in March with two-year rates
    TMUBMUSD02Y,
    4.101%
    posting their biggest monthly yield drop since January 2008. The yield on the two-year Treasury note traded at 4.06% on Friday, down 73.5 basis points in March, according to Dow Jones Market Data.

    “So far, equities are holding up and economic data has not materially faltered, but I can say with confidence that moves of this magnitude in the Treasury market are not typically signals of smooth sailing ahead,” said Liz Young, head of investment strategy at SoFi.

    The ICE BofA MOVE Index, which measures the implied volatility of the U.S. Treasury markets rallied to 198.71 in mid-March, its highest level since 2008, according to FactSet data. 

    “At the very least, they’re indicating that the uncertainty around Fed policy has risen. Not only due to the recent fears in the banking system — but to the unclear end to the Fed’s hiking cycle.” 

    Earnings reports, March jobs data ahead

    Waddell said investors shouldn’t rely too heavily on a few week’s gains in U.S. stocks, but thinks market sentiment could improve in April due to surprise in the “resilience of earnings and the robustness of them in the recovery.” 

    However, John Butters, senior earnings analyst at FactSet, said there has been larger cuts than average to EPS estimates for S&P 500 companies for the first quarter of 2023, given the continuing concerns in the market about bank liquidity and a possible broader economic recession.

    The estimated earnings decline for the index is 6.6% for the quarter. If that is the actual decline, it will mark the largest earnings decline reported by the index since the second quarter of 2020, Butters said in a Friday note. 

    Several Federal Reserve speakers are on deck for next week, but the other big thing to watch will be the monthly jobs report for March from the U.S. Labor Department on Friday.

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  • U.S. stocks end Friday higher, Nasdaq posts best quarter since 2020

    U.S. stocks end Friday higher, Nasdaq posts best quarter since 2020

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    U.S. stocks rallied on Friday to end a rocky month higher, while the Nasdaq Composite also posted its best quarterly gain since 2020. The Dow Jones Industrial Average
    DJIA,
    +1.26%
    jumped about 414 points, or 1.3%, ending near 33,273 on Friday and up 1.9% for the month, according to preliminary FactSet figures. The S&P 500 index
    SPX,
    +1.44%
    and Nasdaq Composite Index
    COMP,
    +1.74%
    posted higher daily gains of 1.4% and 1.7%, respectively, which elevated their monthly gains to 3.5% and 6.7%. Investors in stocks largely looked past turbulence earlier in March after the Federal Reserve acted to calm markets following the sudden collapse of Silicon Valley Bank and Signature Banks. The Fed opened a new facility for banks to tap for liquidity with the aim of preventing forced asset sales, if other banks experience sharp deposit outflows. Friday also marked the end of the quarter, with the Dow and S&P 500 both posting back-to-back quarterly gains. The Nasdaq booked a 16.8% quarterly gain, the best quarter since the 2020, according to Dow Jones Market Data.

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  • Swiss prosecutors open probe into UBS takeover of Credit Suisse

    Swiss prosecutors open probe into UBS takeover of Credit Suisse

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    Swiss prosecutors have opened an investigation into possible illegal activity in connection with government support for UBS’s rushed takeover of Credit Suisse.

    The two banks agreed to merge in March as part of an emergency deal targeted at avoiding a national financial crisis that could have had a knock-on effect globally.

    “The Federal Prosecutor’s office wants to proactively fulfill its mission and responsibility to contribute to a clean Swiss financial center and has set up monitoring in order to take immediate action in any situation that falls within its field of activity,” the authority said in a statement.

    Last month, Zurich-based UBS was forced by Swiss authorities to take over its longtime domestic rival Credit Suisse in a deal that creates a new bank.

    The prosecutor’s statement said that the intention of the probe was to “analyze and identify any criminal offenses” associated with the deal, adding that various bodies had been contacted to provide clarifications and information.

    The deal has been unpopular locally and on Sunday, Swiss daily Tages-Anzeiger reported that the new entity could slash jobs by up to 30 percent.

    “If we had done nothing, [Credit Suisse] shares would have been worthless on Monday and the shareholders would have gone home empty-handed,” Swiss Finance Minister Karin Keller-Sutter said last weekend in justifying the deal.

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    Joshua Posaner

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  • S&P 500 ends above 4,000 mark on Wednesday, posting highest close in 3 weeks

    S&P 500 ends above 4,000 mark on Wednesday, posting highest close in 3 weeks

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    U.S. stocks finished higher on Wednesday as investors waited on an update on inflation due Friday that could help inform how many more rate hikes to expect from the Federal Reserve.

    The S&P 500 index SPX rose about 56 points, or 1.4%, ending near 4,027, according to preliminary FactSet data, the highest close since March 6. That was only days before the collapse of Silicon Valley Bank put a spotlight on risks in the U.S. banking system after the Fed’s yearlong stretch of quick rate hikes.

    The…

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  • U.S. stocks close lower Tuesday as Treasury yields climb

    U.S. stocks close lower Tuesday as Treasury yields climb

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    U.S. stocks ended modestly lower on Tuesday, as Treasury yields rose, keeping pressure on the rate-sensitive Nasdaq Composite Index. The Dow Jones Industrial Average DJIA shed about 37 points, or 0.1%, ending near 32,394, while the S&P 500 index SPX fell 0.2% and the Nasdaq COMP closed 0.5% lower, according to preliminary data from FactSet. Stocks fell, but ended off the session lows, as the 2-year Treasury rate BX:TMUBMUSD02Y climbed 10.5 basis points to 4.06%. Bond yields and prices move in the opposite direction. Tuesday also saw a raft of relatively upbeat economic data and increased expectations by traders in fed-funds…

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  • Dow ends 130 points higher Friday, stocks book weekly gains despite continued banking sector concerns

    Dow ends 130 points higher Friday, stocks book weekly gains despite continued banking sector concerns

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    U.S. stocks ended a volatile week higher on Friday, a week that saw the Federal Reserve raise rates another 25 basis points and risks in the U.S. and European banking sectors remain in key focus. The Dow Jones Industrial Average
    DJIA,
    +0.41%
    rose about 132 points, or 0.4%, ending near 32,238, Friday, boosting its weekly gain to 1.2%, according to preliminary FactSet data. The S&P 500 index
    SPX,
    +0.56%
    climbed 0.6% Friday and 1.4% for the week, while the Nasdaq Composite Index
    COMP,
    +0.31%
    closed up 0.3% for a 1.7% weekly gain. Investors have been concerned about a potential credit crunch and its likely toll on the economy, after the failure earlier in March of Silicon Valley Bank and Signature Bank. Fed Chairman Jerome Powell on Wednesday said he expected credit conditions to tightening further, doing some of the central bank’s work for it, in terms of bringing down inflation. One worry is that high rates and tighter credit could lead to a wave of defaults. Goldman Sachs this week raised its default forecast for the U.S. high-yield, or junk-bond, market to 4% from 2.8% for 2023. The junk-bond market is considered an earlier harbinger of potential stress in credit markets since it finances companies already considered at an elevated risk of buckling. European banks also were in focus, including on Friday as shares of Deutsche Bank
    DB,
    -3.11%
    came under pressure after costs of insuring it against a credit default jumped. Still, the S&P 500 and Nasdaq posted back-to-back weekly gains, according to Dow Jones Market Data. Before Friday, the Dow had two weekly declines in a row.

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  • U.S. economy speeds up in March, S&P finds, but so does inflation

    U.S. economy speeds up in March, S&P finds, but so does inflation

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    The numbers: The U.S. economy accelerated in March, S&P Global surveys showed, but so did inflation as companies raised selling prices.

    The S&P Global Flash U.S. services-sector index rose to an 11-month high of 53.8 from 50.5 in the prior month. Most Americans are employed on the service side of the economy.

    The S&P Global U.S. manufacturing sector index, meanwhile, increased to 49.3 from 47.3. That’s a five-month high.

    Any number above 50 points to expansion. Figures below that signal contraction.

    The S&P Global surveys are among the first indicators each month to assess the health of the economy.

    Key details: New orders, a sign of future sales, rose for the first time since last September at service-oriented companies.

    Booking at manufacturers fell again, but at the slowest pace in six months. More positively, production increased for the first time since last September.

    Employment rose across the economy as both service companies and manufacturers said they added new workers.

    On the downside, the increase in demand allowed companies to raise prices at the fastest pace in five months.

    Business leaders said rising costs, especially labor, contributed to their decision to raise prices.

    That’s not good news for Federal Reserve officials who worry that rising wages could make it harder to get high inflation under control.

    Big picture: The service and industrial sides of the economies are following different trajectories.

    Americans are spending relatively more money on services such as travel and eating out and spending less on goods. As a result, service companies are still hiring and growing at a faster clip.

    Manufacturers are basically treading water due to the shift in consumer spending patterns as well as the depressive effects of higher inflation and interest rates.

    Adding it all up, though, the S&P reports paint the picture of a expanding economy that is not on the doorstep of recession.

    What remains to be seen is how much the recent stress in the banking sector hurts lending and makes it harder for businesses to borrow and invest.

    Looking ahead: “March has so far witnessed an encouraging resurgence of economic growth,” said Chris Williamson, chief business economist at S&P Global.

    “There is also some concern regarding inflation,” he said. “The inflationary upturn is now being led by stronger service sector price increases, linked largely to faster wage growth.”

    Market reaction: The Dow Jones Industrial Average
    DJIA,
    -0.17%
    and S&P 500
    SPX,
    -0.13%
    fell in Friday trades.

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  • Durable-goods orders fall 1% in February. Cars and planes to blame

    Durable-goods orders fall 1% in February. Cars and planes to blame

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    The numbers: Orders for U.S. manufactured goods fell 1% in February because of less demand for passenger planes and new cars. Yet business investment rose for the second month in a row in a sign the industrial side of the economy is still growing.

    Economists polled by the Wall Street Journal had forecast a 0.3% drop in orders. Durable goods are products like cars, appliances and computers meant to last at least three years.

    Orders rise in an expanding economy and shrink in a contracting one. They are still rising but at a slower pace compared to last year.

    Orders are up 2.3% over the past 12 months, marking the smallest year-over-year increase since 2020.

    See government report

    Key details: Orders for commercial jets and new cars both fell last month. Bookings dropped 6.6% for airplanes and almost 1% for new autos.

    The transportation segment is a large and volatile category that often exaggerates the ups and downs in industrial production. Orders for both the aircraft and carmakers have been very choppy since the pandemic.

    Orders excluding transportation were unchanged in February, reflecting recent weakness in manufacturing.

    The most positive news in the report was the second straight increase in business investment — a sign of future demand. So-called core orders rose 0.2%.

    These orders exclude military spending and the auto and aerospace industries. They are up 4.3% in the past year, but that’s also the smallest increase since 2020.

    Big picture: The industrial side of the economy has slowed since last year because of steep inflation and rising interest rates. Higher borrowing costs curtail demand for expensive manufactured goods and discourage investment.

    Manufacturers are still growing, but further weakness would be a bad omen. Heavy industry is at the leading edge of the economy.

    The recent turmoil in the banking sector after the failure of Silicon Valley Bank could also add to the stress if banks scale back lending to businesses.

    Looking ahead: “Business investment is definitely a vulnerability for the economy in the event of a severe tightening in credit conditions,” said chief economist Stephen Stanley of Santander Capital Markets. “Thus, it will be important to watch these numbers going forward.”

    Market reaction: The Dow Jones Industrial Average
    DJIA,
    +0.41%
    and S&P 500
    SPX,
    +0.56%
    were set to open sharply lower in Friday trades.

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  • Bank of America identifies the next bubble and says investors should sell stocks rather than buy them after the last rate hike

    Bank of America identifies the next bubble and says investors should sell stocks rather than buy them after the last rate hike

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    Another bubble has emerged, courtesy of the bank-sector crisis which has already felled three U.S. regional banks.

    Bank of America analysts led by the Michael Hartnett say money-market funds are the new hot asset.

    They point out that assets under management for money funds has now exceeded $5.1 trillion, up over $300 billion over the past four weeks. They also counted the biggest weekly flows to cash since March 2020, the biggest six-week inflow to Treasurys ever, and the largest weekly outflow from investment-grade bonds since Oct. 2022.

    The last two times money-market fund assets surged — in 2008 and in 2020 — the Federal Reserve slashed interest rates. Hartnett is fond of the saying, “markets stop panicking when central banks start panicking,” and he noted a surge in emergency Fed discount window borrowing has historically occurred around a big stock-market low.

    There is one difference this time, in that inflation is a reality and that labor markets, not just in the U.S. but in other industrialized nations, remains exceptionally strong. The Bank of America team counted 46 interest rate hikes this year, including by the Swiss National Bank after its rescue of Credit Suisse last week.

    History, according to the BofA team, says to sell the last interest rate hike. “Credit and stock markets are too greedy for rate cuts, not fearful enough of recession,” they say. After all, when banks borrow from the Fed in an emergency, they tighten lending standards, which in turn results in less lending, and that leads to less small-business optimism, which eventually cracks the labor market.

    Bond yields
    TMUBMUSD10Y,
    3.311%
    and U.S. stock futures
    ES00,
    -0.84%
    dropped on Friday, as shares of Deutsche Bank tumbled in Frankfurt.

    The S&P 500
    SPX,
    +0.30%
    has gained just under 1% this week.

    See also: Money-market funds swell to record $5.4 trillion as savers pull money from bank deposits

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