Stocks fell as bond yields rose after solid economic readings and a rally in commodities spurred speculation that major central banks will keep interest rates higher for longer.

In a revival of the “good news is bad news” trade, better-than-estimated data on U.S. job openings and factory goods orders added to skepticism about the pace of Federal Reserve easing. With traders now projecting fewer rate cuts in 2024 than the Fed itself, 10-year yields hit the highest levels since November. That weighed on the equity market — which had been ignoring the repricing of central-bank bets in the last few months amid a torrid rally.

 “Stock bulls may find it difficult justifying buying stocks at these elevated levels as yields rise,” said Fawad Razaqzada at City Index and Forex.com. “Rising crude oil prices pose additional risk to the inflation outlook. Additionally, numerous jobs reports are expected throughout the week. Trading could be volatile.”

Following hotter-than-estimated data in various corners of the world, the global version of Citigroup’s Economic Surprise Index — which measures the difference between actual releases and analyst expectations — is near the highest in a year. Just this week, the two biggest economies — the U.S. and China — showed strong manufacturing figures.

The S&P 500 saw its worst day in almost a month. Tesla Inc. led losses in megacaps. A gauge of small caps sank nearly 2 per cent. Wall Street’s favorite volatility measure — the VIX — jumped. U.S. 10-year yields rose four basis points to 4.35 per cent. Oil climbed to US$85, copper rallied and gold hovered near all-time highs. Bitcoin sank.

As traders awaited remarks from Fed Chair Jerome Powell on Wednesday, they weighed comments from two officials who vote on monetary policy decisions this year.

San Francisco Fed President Mary Daly and her Cleveland counterpart Loretta Mester said they still expect the central bank to cut rates three times in 2024 — though they’re in no rush to begin lowering borrowing costs.

Swap traders are currently projecting about 65 basis points of rate reductions this year — less than the 75 basis points signaled in the Fed’s latest “dot plot” forecasts.

“Our base case is that the Fed engineers a soft landing and starts to cut rates in the second half of the year,” said Gargi Chaudhuri at BlackRock. “The downside risks to economic growth have diminished, so the risk of only two Fed rate cuts now appears higher than the risk of four cuts.”

U.S. stocks have gained about 30 per cent from October lows even with projections for Fed cuts being pushed back. That disconnect between equity markets and rate expectations is a worrying sign, according to strategists at JPMorgan Chase & Co. led by Mislav Matejka. They said earnings would need to accelerate in order to plug that gap.

Investors who are selling stocks because the Fed may scale back plans for interest rate cuts are missing the point. The move would be a good sign for the economy — and therefore equity markets, according Morgan Stanley Investment Management’s Andrew Slimmon.

“I think a patient Fed validates that the economy is strong,” Slimmon told Bloomberg Television. “That’s better for equities.”

The S&P 500’s trailing one-year return has exceeded the performance of long-term U.S. Treasuries for 40 straight months — the longest streak since at least 1978, according to data compiled by Bespoke Investment Group.

“Bonds have been due for a bounce, but if you’ve been holding your breath waiting for one, RIP,” the firm said.

Bespoke also cited the fact that the equity gauge was up over 30 per cent on a total return basis in the 12 months ending in March — ranking as the strongest 12-month gain for the index since October 2021.

“A correction can happen at any time, but the S&P 500’s median performance one, three, six, and 12 months after initially rallying 30 per cent in a year was better than the average for all periods,” Bespoke said.

Also, despite the equity slide this week, the market has still avoided any major pullbacks at a historic pace. 

The maximum drawdown thus far in 2024 for the S&P 500 sits at nearly 2 per cent — on track to be among the smallest ever if this continues for the rest of the year, according to data from JPMorgan Asset Management going back to 1980. Since then, the year that holds the record for the tiniest max drawdown is 1995, at roughly 3 per cent — arguably the only time in more than a half century when the Fed pulled off a soft landing.

Since 1950, there have been 11 prior instances where the S&P 500 rose at least 10 per cent in the first quarter, per Keith Lerner of Truist Advisory Services. The equity gauge was higher the rest of the year 10 out of 11 times, with an average gain of 11 per cent, Truist data show. The only exception was in 1987 following the Black Monday crash in October of that year.

Corporate Highlights:

• Tesla Inc. delivered 386,810 vehicles in the first three months of the year, missing Bloomberg’s average estimate by the biggest margin ever in data going back seven years.
• Health insurance stocks tumbled after U.S. regulators didn’t boost payments for private Medicare plans like the industry had come to expect.
• Autodesk Inc. fell after disclosing an internal investigation into its own accounting practices and putting off the release of its annual financial report.
• Endeavor Group Holdings Inc., the talent agency and controlling investor in WWE and the Ultimate Fighting Championship, agreed to be acquired in a $13 billion buyout by the private equity group Silver Lake Management.
• SLB agreed to acquire rival oil field service provider ChampionX Corp. for $7.8 billion in an all-stock deal, a move that will bulk up SLB’s technology portfolio as aging shale wells prompt U.S. drillers to spend more to keep output flowing longer.
• Cal-Maine Foods Inc., the biggest egg producer in the U.S., has culled roughly 3.6 per cent of its flock after birds at a Texas facility tested positive for avian flu, adding to concerns over a widening outbreak.
• The United Steelworkers union dismissed a letter from Nippon Steel Corp. committing to spending and job protection as “a meaningless piece of paper,” in the latest salvo over the Japanese steelmaker’s planned $14.1 billion acquisition of United States Steel Corp.
• Airbus SE delivered about 145 aircraft in the first three months of the year as the planemaker works to ramp up output and meet its annual handover goal of 800 jets.

Key events this week:

• China Caixin services PMI, Wednesday
• Eurozone CPI, unemployment, Wednesday
• Japan services PMI, Wednesday
• U.S. ADP employment, ISM Services, Wednesday
• Fed Chair Jerome Powell speaks, Wednesday
• Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak, Wednesday
• Eurozone S&P Global Services PMI, PPI, Thursday
• U.S. initial jobless claims, Challenger job cuts, Thursday
• Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday
• European Central Bank publishes account of March rate decision, Thursday
• Eurozone retail sales, Friday
• U.S. unemployment, nonfarm payrolls, Friday
• Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.9 per cent
• The Dow Jones Industrial Average fell 1 per cent
• The MSCI World index fell 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.1 per cent
• The euro rose 0.2 per cent to $1.0768
• The British pound rose 0.2 per cent to $1.2577
• The Japanese yen was little changed at 151.57 per dollar

Cryptocurrencies

• Bitcoin fell 5.5 per cent to $65,920.04
• Ether fell 6.3 per cent to $3,277.01

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.35 per cent
• Germany’s 10-year yield advanced 10 basis points to 2.40 per cent
• Britain’s 10-year yield advanced 15 basis points to 4.08 per cent

Commodities

• West Texas Intermediate crude rose 1.7 per cent to $85.10 a barrel
• Spot gold rose 1.2 per cent to $2,277.40 an ounce