Stocks recovered from an early dip as US equity markets reopened from the long Easter weekend on Monday, with investors weighing up the potential for more interest rate rises from the Federal Reserve.
The S&P 500 closed 0.1 per cent higher after a late pick-up, while the tech-heavy Nasdaq Composite ended the day flat despite dropping as much as 1.4 per cent in early trading.
Monday marked the first opportunity traders had to respond to data released on Friday showing the continued strength of the US labour market.
The US economy added 236,000 new positions last month, fewer than in February but not enough of a slowdown to discourage the central bank from making another rate rise to tamp down inflation, traders thought.
Investors had initially shrugged off warnings at the Fed’s most recent policy meeting that it would make at least one more rate rise to bring price rises under control. However, futures markets are now pricing in an almost 75 per cent chance of an interest rate increase at next month’s meeting.
Treasury markets, which were open on Friday, had already sold off in response to the jobs data and prices slipped further on Monday. The yield on the benchmark 10-year note ticked up 0.04 percentage points to 3.42 per cent, while the two-year yield added 0.04 percentage points to reach 4.01 per cent. Yields rise when prices fall.
Nancy Curtin, chief investment officer at Alvarium Tiedemann, said she expected the Fed to lift rates one more time, but added: “It feels like a coin toss . . . a lot will depend on what [officials] see in consumer inflation data on Wednesday and [producer price inflation] on Thursday.”
She pointed out that while jobs growth remained strong, Friday’s data included signs of slowing wage growth, which should help bring down inflation over time.
Economists expect consumer price inflation to dip to an annual rate of about 5.2 per cent and a month-on-month rate of 0.3 per cent, a level that Citi analyst Stuart Kaiser said would “mark modest deceleration . . . but remain too high for comfort and likely read negative for stocks”.
First-quarter earnings season also kicks off in earnest with results from a series of bellwether financial groups, including JPMorgan Chase.
“What people will focus on is not so much the earnings themselves as the guidance — what CEOs are saying in terms of credit conditions,” Curtin said. “Lending by banks had already cut back a bit even before [the collapse of several banks last month].”
European markets remained closed for Easter Monday. Hong Kong was also closed. Japan’s Topix stock index added 0.6 per cent.
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