Extreme Market Swings Dominate as Hot Economy, Oil Feed Anxiety

A steady march higher in markets was snapped by a stretch of jarring volatility as traders gave hints there’s a limit to their appetite for hot economic data.

While a Friday rally in equities spared cross-asset investors their worst week since 2022, it capped a series of extreme market moves. Stocks and bonds staged their worst synchronized drop of the year on Monday and Tuesday, while Thursday saw the biggest reversal of an S&P 500 rally since August. An exchange-traded fund tracking long-dated Treasuries suffered its worst week since October as 10-year yields reached the highest in more than four months.

Rather than recession anxiety, the culprit was robust reports on job openings and factory output — as well as a surge in oil — that raised doubts the Federal Reserve has room to cut interest rates anytime soon.

An emerging issue for bulls is the impact of markets themselves on the economy, according to Torsten Slok, the Apollo Global Management economist who has repeatedly warned that gains in asset prices are working against central bankers’ goals.

“The tailwind from easing financial conditions is overwhelming and neutralizing the rate hikes from last year,” Slok, who in March predicted no rate cuts this year, said in a phone interview. “It’s not surprising that the economy is re-accelerating and, therefore, rates will have to stay higher.”

weekly retreat

The broad rally across assets that has added $13 trillion in financial wealth since October looked shakier this week as inflation angst resurfaced, with Brent crude climbing above $90 a barrel. Another solid jobs report Friday on the heels of an unexpected expansion in manufacturing triggered a hawkish repricing in bonds. Traders are now pushing back bets on when the Fed will start cutting rates to September, paring odds for June or July.