U.S equities closed the short holiday week higher, continuing the strength seen in Q1 as traders swiveled between defensive and cyclical stock as the focus shifts back and forth between recession fears and monetary policy concerns. Fed Bank of St. Louis President James Bullard boosted the market on Thursday afternoon as he noted the drop in bonds will help ease the macroeconomic fallout of the recent banking crisis. Risk-off sentiment continues to build, which may increase with key economic data releases and the start of earnings season next week.
Investors have aggressively priced in rate cuts this year as the market expects three cuts and a slightly above 4% Fed rate by December. Trading volumes were relatively low in the equity markets and investors continue to shift to the safety of bonds as the U.S. 10yr treasury yield dropped 25bps to 3.3% and the 2yr is firmly below 4%. The bond market will be waiting for the jobs report on April 7th and CPI data next week as a very strong jobs number and higher than expected inflation print may suggest the Fed has more tightening ahead.
Oil had a strong gain this past week, closing above $80, up nearly 8.5% for the week. The spike was driven by Saudi Arabia and its OPEC+ allies unexpectedly announcing a round of production cuts. The gain didn’t move much past that $80 level as traders digest the production cuts along with the headlines that the U.S. economy is weakening.