Stock Rally Keeps Going With S&P 500 Climbing 2%: Markets Wrap

(Source: Unsplash)

(Bloomberg) -- The chaotic week for financial markets is drawing to a close, with risk assets getting bid as regional banks soared and solid jobs figures tempered fears of an economic recession. Treasuries fell.

A rally in equities halted the S&P 500's longest losing streak since February, with the benchmark measure up 2%. PacWest Bancorp almost doubled in value, leading a surge in financial firms. Strong earnings at Apple Inc. lifted the megacap tech space, spurring a 5% jump in shares of the world's most-valuable company.

US hiring and workers' pay gains accelerated in April, showing signs of labor-market resilience and inflationary pressures in the face of headwinds.

“For now, this report is another sign that the Fed hasn't broken the economy yet,” said Callie Cox, a US investment analyst at eToro. “The bears' best argument is that a recession is around the corner, but it may be hard to make that argument until we see actual evidence in jobs data.”

Another key aspect of the data is the fact that the strong figures also increase chances the Federal Reserve will hold rates higher for longer, and potentially keep the door open to an 11th straight hike in June.

Fed Bank of St Louis President James Bullard said policymakers will probably have to push rates higher to cool inflation, but said he would wait and see what the data show before deciding what move to support in June. Bullard also said he thinks the US central bank can still achieve a soft landing, with inflation returning to the target without triggering a significant downturn.

Swap Market

Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September — followed by at least two quarter-point cuts by year-end. Treasury two-year yields climbed as much as 15 basis points to 3.94%.

“If the Fed was expecting definitive confirmation it's time to pause, this is not that signal,” said Ronald Temple, chief market strategist at Lazard. “All said, 500bps of rate hikes are having an impact, but it's too early to declare victory over inflation.”

In fact, while inflation has shown some signs of moderation, it's still well above the central bank's 2% target. The core consumer price index, which excludes food and energy and is closely watched by the Fed, is projected to show a 5.5% increase in April from a year ago. The report is due Wednesday.

Bank of America Corp.'s Michael Hartnett — who correctly predicted the equity exodus last year — said that a “new structural bull market requires big Fed easing,” which in turn needs a “big recession.”

Resilience in the labor market and price pressures that remain sticky, however, are likely to prevent the Fed from pivoting to cut rates. The strategist reiterated a call to “sell the last rate hike” in the note dated May 4, before the jobs report came out.