The S&P 500 started the second quarter on a shaky note as surging Treasury yields dampened bullish sentiment on Monday. The unexpected expansion in manufacturing activity highlighted the strength of the economy, leading investors to reassess their expectations for Federal Reserve rate cuts.
At 4:00 PM ET, the S&P 500 fell by 0.3%, the Nasdaq gained 0.1%, and the Dow Jones Industrial Average was down by 240 points, or 0.6%.
The yield on the 2-year Treasury, which is closely tied to Fed policy, surged by 9 basis points to 4.712% after the manufacturing index unexpectedly rose to 50.3 from 47.8. This marked the first time the index crossed the 50 threshold since September 2022. The increase in the prices paid component of the index, indicating a rise in inflation, further supported the notion of a strong economy.
Federal Reserve Chairman Powell’s remarks on Friday echoed the sentiment of not rushing to cut rates, given the solid pace of economic growth and a robust labor market. The odds of a rate cut in June decreased to 56% from 64% the previous week.
In the tech sector, Microsoft saw a nearly 1% increase as it plans to offer its Teams app as a standalone product globally. Alphabet Inc Class A closed 3% higher following positive remarks from Jefferies, addressing investor concerns about AI threats and cloud revenue.
Micron Technology Inc rallied over 5% after Bank of America raised its price target on expectations of increased demand for memory chips in the AI sector.
On the flip side, Tesla implemented a $1,000 price hike for all Model Y variants in the US, citing waning demand and tough competition in China. Trump Media & Technology Group Corp reported a significant net loss, causing its stock to plummet by 21%. AT&T Inc also faced a 0.6% decline after confirming a data leak affecting millions of customers.
Overall, the market’s reaction to the unexpected manufacturing expansion and the shifting expectations around Fed rate cuts set the tone for a volatile start to the second quarter. Investors will be closely watching upcoming economic data and corporate earnings reports for further insights into the market’s direction.
