Oil Steadies, Treasuries Dip As Iran Stresses Ease: Markets Wrap

Stocks kicked off the week on a positive note, while bonds fell as data showed economic resilience and speculation grew that the Middle East conflict remains contained.

Equities climbed as US retail sales increased by more than forecast in March and the prior month was revised higher. A surprise profit from Goldman Sachs Group Inc. also helped boost sentiment. Treasury yields hit fresh 2024 highs also with JPMorgan Chase & Co. and Wells Fargo & Co. tapping the US high-grade bond market, the first in a likely parade of bond sales from banks following their release of results.

“We have an economy that continues to surprise to the upside,” said Chris Larkin at E*Trade from Morgan Stanley. If the S&P 500 is going to avoid its first three-week losing streak since last September, investors will need to move past concerns that rate cuts will be delayed because of sticky inflation.

The S&P 500 rose to 5,140, rebounding after posting its biggest weekly drop in 2024. Financial shares drove gains on Monday, with Goldman Sachs adding about 4%. Nvidia Corp. led megacaps higher. Treasury 10-year yields spiked nine basis points to 4.61%. Oil sank as traders shrugged off Iran’s attack on Israel.

“The consumer is consuming, a lot,” said Jamie Cox at Harris Financial Group. “If you were looking for an economic slowdown, you aren’t getting it.”

The strong tailwind from easy financial conditions continues to boost inflation and growth, including consumer spending in March, said Torsten Slok at Apollo Global Management.

“Given the ongoing reacceleration in the economy, the Fed will not cut interest rates in 2024,” he noted.

Bond yields rose immediately following the release due to rising concerns about a potential “no-landing, no-rate cut scenario,” according to Sam Millette at Commonwealth Financial Network

Federal Reserve Bank of New York President John Williams pointed to the enduring strength of consumers and the broader economy, but said the central bank will likely start lowering interest rates this year if inflation continues to gradually come down.

The one constant throughout this entire expansion has been the strong consumer — and based on this morning’s retail sales numbers, it seems as if that strength is only increasing, said Chris Zaccarelli at Independent Advisor Alliance.

“Given the strong consumer sales and low unemployment figures, it’s no surprise that companies are continuing to make record profits, however, it also puts the Fed on its back foot,” he noted. “The markets have been buoyed by strong corporate profits and the elixir of lower rates, but it seems like those two things are increasingly at odds with each

Stubborn inflation, a robust economy and signals from Fed officials that interest rates will remain higher for longer have derailed traders’ optimism for an interest rate cut by summer. But that doesn’t mean they’re worried about the stock market

Soothsayers at Jefferies LLC, JPMorgan Chase & Co., Citigroup Inc. and State Street Corp. agree that the strength in economic data and corporate earnings is enough to keep this year’s stock market rally going — whether or not interest rates are dialed back.

Stickier inflation stemming from strong economic momentum is better for US equities than stagflation, according to Bank of America Corp. strategists led by Ohsung Kwon.

“If inflation is sticky because of momentum in the economy, that’s not necessarily bad for stocks,” they wrote, adding “but stagflation is.”

“Recent inflation data has laid to rest the notion of a Goldilocks US economy. Instead, investors and the Fed will have to put up with a bumpier disinflation path than they assumed at the start of the year,” said Jason Draho at UBS Global Wealth Management. “But overall macro conditions of trend-level growth, slow and bumpy disinflation, and a Fed ready to exercise its put of rate cuts is still supportive for risk assets.”

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Don’t bank on an upbeat corporate earnings season to drive equities higher as much of the optimism is already priced in following the record-breaking rally this year, according to JPMorgan Chase & Co. strategists led by Mislav Matejka wrote.

“Equities have already had a good run into the results, suggesting that investors are more optimistic than the downbeat earnings projections by sell-side analysts convey,” they said. “We need to see clear earnings acceleration in order to justify current equity valuations, which we fear might not come through.”

Strategists at BlackRock’s Investment Institute see signs of earnings growth broadening beyond US technology behemoths to other sectors like industrials and materials in this reporting period.

Strong economic data and corporate earnings have supported risk appetite so far this year despite a jump in bond yields, but “earnings will need to deliver on high expectations,” team led by global chief investment strategist Wei Li said Monday in a weekly commentary note.

An improving outlook for the US economy and continued easy financial-market conditions have prompted Wells Fargo Investment Institute to boost its outlook for the US stock market and corporate earnings estimates.

The investment adviser raised its S&P 500 Index 2024 year-end forecast to range of 5,100 to 5,300.

“A point of emphasis is that these year-end targets allow for potential market disappointments related to the track of inflation and the federal funds rate,” strategists at WII wrote.

Without a spike in oil prices on Middle East tensions, markets would go back to trade the Fed, says Citigroup Inc. strategists including Dirk Willer, which recommend investors buy the dip in that case.

They this weekend’s Iran attack unlikely to lead to a further escalation for now, even as medium-term risks have risen.

“This war may move down the escalation ladder if the Israeli government follows the advice of the White House and forgoes retaliatory action,” RBC Capital Markets LLC analysts including Helima Croft said in a note. While the Iranian action was “far more expansive than previous reprisals, it was sti

Corporate Highlights:

Salesforce Inc.’s Marc Benioff is pursuing what would be one of the company’s biggest-ever deals after fending off activist investors critical of his reliance on acquisitions. He is in talks to buy Informatica Inc., according to people familiar with the matter.
Tesla Inc. will slash global headcount by more than 10%, Elon Musk wrote in an email to staff, as the carmaker grapples with a slowdown in electric vehicle demand.
Clearlake Capital Group LP has made a sweetened bid to acquire Blackbaud Inc., offering $80 a share about a year after its last approach was rebuffed by the cloud software provider.
Charles Schwab Corp.’s first-quarter net revenue topped estimates as the retail brokerage tries to put 2023’s turbulence behind it.
Apple Inc.’s iPhone shipments slid a worse-than-projected nearly 10% in the quarter ended in March, reflecting flagging sales in China despite a broader smartphone industry rebound.
CVC Capital Partners revived plans for an initial public offering in Amsterdam, seeking to raise at least €1.25 billion ($1.3 billion) with its investors in a listing that potentially paves the way for other private equity firms to go public.

Key events this week:

China property prices, retail sales, industrial production, GDP, Tuesday
Germany ZEW survey expectations, Tuesday
US housing starts, industrial production, Tuesday
Morgan Stanley, Bank of America earnings, Tuesday.
Fed Vice Chair Philip Jefferson speaks, Tuesday
BOE Governor Andrew Bailey speaks, Tuesday
IMF publishes its latest world economic outlook, Tuesday
Eurozone CPI, Wednesday
Fed issues its Beige Book, Wednesday
Cleveland Fed President Loretta Mester speaks, Wednesday
Fed Governor Michelle Bowman speaks, Wednesday
BOE Governor Andrew Bailey speaks, Wednesday
Taiwan Semiconductor earnings, Thursday
US Conf. Board leading index, existing home sales, initial jobless claims, Thursday
Fed Governor Michelle Bowman speaks, Thursday
New York Fed President John Williams speaks, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
Chicago Fed President Austan Goolsbee speaks, Friday