[New York Stock Market] Decline as Rate Cut Prospects Fade... International Oil Prices Reach 5-Month High

US 10-Year Treasury Yield Hits 4-Month High
Tesla Falls 4.9% on Q1 Vehicle Delivery Drop
March Employment Report to Be Released on 5th

The three major indices of the U.S. New York stock market closed lower on the 2nd (local time). The unexpected strength in last month's manufacturing sector raised expectations that the Federal Reserve's (Fed) pivot (change in direction) might be delayed, causing U.S. Treasury yields to surge to their highest level in over four months, weighing on the stock market. The U.S. Department of Labor's March employment report, to be released on the 5th, is expected to influence the future market trend. International oil prices soared to their highest level in over five months due to geopolitical tensions.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average fell 396.61 points (1%) from the previous trading day to close at 39,170.24. The large-cap-focused S&P 500 index dropped 37.96 points (0.72%) to finish at 5,205.81. The tech-heavy Nasdaq index declined 156.38 points (0.95%) to close at 16,240.45.

Investor sentiment froze as the U.S. manufacturing sector in March showed much stronger performance than expected. According to the Institute for Supply Management (ISM) the previous day, the March manufacturing Purchasing Managers' Index (PMI) was recorded at 50.3, surpassing both the previous month’s 47.8 and experts’ forecast of 48.5. A PMI above 50 indicates expansion, while below 50 signals contraction. This is the first time in a year and a half since September 2022 that the U.S. manufacturing PMI compiled by ISM has entered expansion territory. The expansion in U.S. manufacturing raises the possibility of an upward revision to the first quarter’s Gross Domestic Product (GDP) growth rate. The Atlanta Federal Reserve Bank’s 'GDP Now' model projected the U.S. real GDP growth rate for Q1 this year at 2.8%, an increase of 0.5 percentage points from the forecast on March 29.

The rebound in U.S. manufacturing could exert inflationary pressure, leading to market speculation that the Fed’s rate cut timing might be postponed. Consequently, the 10-year U.S. Treasury yield surged to its highest level in four months. The 10-year U.S. Treasury yield, a global benchmark for bond yields, rose 2 basis points (bp) (1bp = 0.01 percentage points) from the previous trading day to around 4.35%, the highest since November 27 last year (4.39%). The 2-year U.S. Treasury yield fluctuated around 4.69%, down 2bp. This sharp rise in Treasury yields weighed on the stock market.

Investors betting on a rate cut in June have decreased. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on that day priced in about a 63% chance that the Fed would cut rates by 0.25 percentage points at the June Federal Open Market Committee (FOMC) meeting, down from over 70% a week ago. While the market still leans toward a June rate cut, some investors have begun to question the likelihood of a cut in June.

Gargi Chadha, Head of Investment Strategy at BlackRock, said, "Our base case is that the Fed plans a soft landing and begins rate cuts in the second half of the year," adding, "Since downside risks to economic growth have diminished, it seems more likely that the Fed will cut rates twice rather than four times this year."

The number of job openings in the U.S. for February, released that day, remained similar to the previous month. According to the U.S. Department of Labor’s February Job Openings and Labor Turnover Survey (JOLTS), the number of job openings last month was 8.8 million, the same as in January, matching market expectations.

Fed officials continued their public remarks that day. Mary Daly, President of the San Francisco Fed, said she expects three rate cuts this year but sees no urgent reason to lower rates at present.

The employment report for March, to be released by the U.S. Department of Labor on the 5th, is the most closely watched employment indicator. With February’s Personal Consumption Expenditures (PCE) inflation not deviating from market expectations and manufacturing showing unexpected expansion, the upcoming employment data is expected to provide clues about the Fed’s rate path. The market expects nonfarm payrolls to increase by 205,000 in March, a significant decrease from February’s 275,000. The unemployment rate for March is expected to remain steady at 3.9%, the same as in February.

Earlier, on the 3rd, the private employment data for March from ADP, a private employment information company, will be released.

On the 3rd, Fed Chair Powell is also scheduled to make further remarks.

By individual stocks, Tesla fell 4.9% following disappointing vehicle delivery figures for the first quarter. Tesla announced that vehicle deliveries from January to March this year totaled 386,810 units, down 8.5% from 422,875 units in the same period last year and significantly below the expert forecast of 457,000 units compiled by market research firm FactSet. This is the first time Tesla’s vehicle deliveries have declined in four years since the COVID-19 pandemic began in 2020. Other tech stocks also underperformed. Nvidia dropped 1.01%, while Microsoft (MS) and Alphabet, Google’s parent company, fell 0.74% and 0.4%, respectively.

International oil prices hit a five-month high due to supply concerns amid geopolitical tensions. Brent crude closed at $88.92 per barrel, up $1.50 (1.7%) from the previous trading day. During the session, it briefly surpassed $89, marking the highest level in five months since October last year. West Texas Intermediate (WTI) crude closed at $85.15 per barrel, up $1.44 (1.7%).