A steadier environment this spring boosted U.S. stocks to new record highs, but Friday’s jobs report is one of three major risks that could disrupt the summer market calm.
The S&P 500 index has risen over 10% in 2024, with late May seeing Wall Street’s fear index (VIX) and the bond market’s MOVE gauge both hitting their lowest levels since March 2022, when the Federal Reserve began raising rates.
Recent market stability is due to a “convergence” of investor expectations that the Federal Reserve will only cut rates twice this year and manage a soft landing for the U.S. economy, says Jason Draho, head of asset allocation at UBS Financial Services.
Draho noted a growing consensus, stating that while growth is slowing but not collapsing, inflation remains high but is trending down, and the likelihood of Fed rate cuts is high with rate hikes unlikely. He mentioned in a Monday client note that this prevailing view implies investors expect minimal changes to benchmark rates this year, which could lead to market stability into late summer.
However, he warned of three near-term risks: May’s jobs report due Friday, the upcoming consumer price index, and the Fed’s next policy meeting on June 12. Significant deviations from expectations in any of these events could cause market disruptions.
On Tuesday, stocks were directionless after a volatile session on the New York Stock Exchange. The Dow Jones Industrial Average was nearly unchanged, while the S&P 500 and Nasdaq Composite Index each fell by 0.2%, according to FactSet.
