The markets made a strong end of week surge, but overall took a little breather from the previous week’s record highs. Signs of firmer U.S. growth in increased nonfarm payrolls and ISM manufacturing brought back the “good news is bad news” theme relating to the Fed not hurrying to lower interest rates. For the week, the S&P 500 was down 0.93%, the Dow Jones Industrial Average was down 2.23%, and the NASDAQ lost 0.79%. The S&P Mid-cap Index lost 1.86% and the Russell 2000 small-cap index was down 2.68% for the week. The Bloomberg Barclays US Aggregate was down 1.06%.

The ISM Manufacturing PMI for March came in at 50.3 compared to consensus of 48.5 and February’s 47.8. That puts the index back over 50, which means expansion territory, for the first time since September of 2022. The New Orders Index moved up to 51.4, just the third time in 22 months it was in expansion territory. With commodity costs remaining unstable, the Prices Index jumped 3.3 from the previous month to 55.8.

The March jobs report also surprised to the upside once again as nonfarm payrolls came in at 303K, well ahead of the 205K expectation. The unemployment rate came in as anticipated at 3.8%. Average hourly earnings came in at 0.3% month-over-month, matching consensus and up slightly from the previous month (though wage growth dipped on a year-over-year basis to 4.1% from 4.3% in February). Warm weather and seasonal factors helped to boost job gains in healthcare, government, and leisure/hospitality. Leisure/hospitality employment finally returned to pre-pandemic levels.

In response to the firmer employment and manufacturing data, bond yields pushed higher (which also means prices were down), as the 10-year Treasury yield closed the week at 4.39%, the highest rate since November. Geopolitical tensions are contributing to higher oil and commodities prices and sticky inflation. With strong economic numbers, there is now talk from some Fed members, such as Minneapolis Fed President Kashkari, of the possibility of no rate cuts this year. The potential for rates being held higher for longer triggered some of last week’s profit taking in the stock market after the strong rally since the end of October.

This week will bring March CPI (Consumer Price Index), where the Core CPI, which excludes food and energy prices, is expected to have grown 0.3% month-over-month (3.7% year-over-year). That would be the smallest increase since April 2021 and far below the peak in 2022 of +6.6%. The PPI, (Producer Price Index), comes in on Thursday, and we will watch for signs of disinflation after factoring in seasonal effects on previous strong reports. Of additional interest will be the release of the FOMC Minutes, possibly giving more clarity to the central bank’s expectations for lowering interest rates.