U.S. stocks are trading lower at the beginning of this trading week, weighed down by concerns among investors regarding the timing of Federal Reserve interest rate cuts, exacerbated by unexpectedly robust manufacturing data that drove Treasury yields upwards.
The Institute for Supply Management (ISM) reported that its manufacturing PMI rose to 50.3 last month, marking the highest reading and the first to surpass 50 since September 2022, up from 47.8 in February. This indicates a potential recovery in the manufacturing sector, which has faced challenges due to increased interest rates.
Following the release of the manufacturing data, benchmark 10-year and two-year Treasury yields surged to their highest levels in two weeks and it is important to say that the majority of S&P 500 sectors are trading lower, with the real estate, healthcare, and utilities among the worst performers. Keith Lerner, chief market strategist at Truist Wealth in Atlanta, said:
“If the economy is still somewhat strong and now that PMI data is starting to move up, that just suggests there could be some upside pressure in yields.”
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Federal Reserve And Interest Rate
David Russell, global head of market strategy at TradeStation, said that investors grew concerned about the possibility of fewer interest rate cuts than expected from the Federal Reserve in the wake of strong economic data and they are worried about another potential strong number this Friday in terms of new jobs.
However, the upcoming monthly non-farm payrolls data, anticipated for Friday, is expected to reveal a slowdown in job additions for March, albeit with an increase in average earnings compared to the previous month.
According to the CME Group’s FedWatch tool, traders are currently pricing approximately 57% chance of the Fed cutting interest rates by at least 25 basis points in June, and they expect two more additional cuts in the 2024 year.
Besides job data this Friday, traders and investors will also focus on comments from a host of Fed officials including New York Fed President John Williams, Cleveland Fed President Loretta Mester, and San Francisco President Mary Daly, scheduled to speak this week.
