Here’s What’s Happening in Markets Today: April 03

Here’s What’s Happening in Markets Today: April 03

Markets reverse decline after services report revived expectations for a June rate cut.

Kristin
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SVP Content/EIC
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Reviewed by: etf.com Staff
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Edited by: Ron Day

Markets kicked off midweek trading by shrugging off concerns about the declining likelihood of interest rate cuts in June, following a report that showed a slowing services sector.

Stock markets reversed early declines after the Institute for Supply Management’s services measurement dropped from February, boosting expectations for a rate cut. The yield on the 10-year treasury note ticked higher.

Though investors will look for clues on the future path of rate cuts during Fed Chair Jerome Powell’s speech on the economic outlook today, hopes of three rate cuts starting at the Fed’s June policy meeting appeared to sour after Atlantic Fed President Raphael Bostic told CNBC he saw only one rate cut coming in the remainder of the year. 

Bond yields jumped on the higher for longer sentiment, while some of the biggest bond ETFs, which are sensitive to moves in interest rates, drifted lower. Markets are currently forecasting a roughly 97% probability that the Fed will hold rates steady next month, while investors are split nearly 50-50 between a rate cut and holding rates steady at June’s policy meeting. 

Rates, Inflation and TLT

TLT, BSV, and BND have been struggling in the face of “higher for longer” fears as two inflation gauges, the consumer price index (CPI) and personal consumption expenditures (PCE) came in higher than expected in March and February respectively. Persistent stickiness in inflation has given the Federal Reserve cover to hold rates steady despite investor hopes for rate cuts in the second half of the year. 

The slide in bond ETFs could provide investors a buying opportunity in advance of any potential rate cuts in the second half of the year. Priced just above $91, TLT, the iShares 20+ Treasury Bond ETF is currently sitting near its lows for 2024. Last year, cooling inflation and potential rate cut hopes caused TLT to soar to more than $105.

Strong economic data from ADP on the state of U.S. employment may have given stocks a boost. Private payrolls increased 184,000 in March, the largest jump since July 2023, the payroll and human resources company announced. The report was higher than expected; economists had originally forecast a jump of 155,000. 

The ADP report is always released in advance of nonfarm payrolls from the Bureau of Labor Statistics (BLS) which drops on Friday. While the strong employment report is a good sign, the ADP report isn’t a reliable indicator of what investors can expect from the BLS employment summary. The Fed has used the strength of the jobs market as a proxy for the strength of the U.S. economy. If the jobs report remains strong, the economy is more resilient and able to withstand higher rates for longer. 

Kristin Myers is an award-winning journalist, who covers business and finance news. She is the current Senior Vice President of Content and Editor in Chief of etf.com. Kristin was most recently the Editor-in-Chief of the economics website The Balance, and an on-air anchor and reporter at Yahoo Finance. 

She hosted Yahoo Finance Live daily, providing afternoon coverage and reporting on markets, and the economy in the hours before the final bell. She was also one of the creators and hosts of “A Time for Change,” a weekly program that explores race, diversity, and inclusion in the world of business, finance, and politics. 

Earlier in her career, Kristin helped launch Al Jazeera America, where she produced high-profile guest segments and was part of field teams for special coverage, including the protests in Ferguson, and the funeral of Nelson Mandela in South Africa.

She has also worked with other news organizations including Bloomberg News, MSNBC, and others, in the U.S. and abroad.