US stocks are expected to start the week on a firmer note on the back of a strong bounce in US job growth numbers for March amid an increasing pace in vaccine rollouts with the number of vaccine shots rising to than 3 million and a fifth of the population receiving their second doses.

The stronger-than-expected jobs report on Friday showed 916,000 jobs added in March, compared to the 675,000 expected by economists.

Wall Street had already kicked off the month of April with a strong rally last Thursday with the S&P 500 rising more than 1% to cross the 4,000 mark, bringing its 2021 gains to 7% ahead of the Easter long weekend and a shortened trading week.

All the three major Wall Street indices had closed March higher with the Dow up by 6.6%, S&P 500 by 4.3% –  their best month since last November while the tech-heavy Nasdaq which saw tech stocks came under pressure amid bond rising yields still picked up 0.4% in March.

The current optimism is being buoyed by the proposed $2.5 trillion infrastructure plan by the Biden administration which includes funds for research, roads, bridges and airports, upgrading of the country’s electric grid and expanding broadband access which will be funded partly by a hike in the corporate tax rate to 28%.

The reopening of the US economy and light drawing near to the end of the pandemic tunnel as well as both continued fiscal and monetary policy are likely to fan the tailwinds for US equities,

Latest US macroeconomic data has also been promising with manufacturing activity from the Institute for Supply Management (ISM) rising to 64.7 for March, up from 60.8 in February – the highest level since December 1983.

With US economic data picking up and the boost from fiscal programmes, more cyclical stocks are likely to come into play especially when the Biden administration signaled that herd immunity may be possible as early as May with average of at least 2 million vaccinations a day.  

The US Fed’s stance that it is averse to the tightening of monetary policies while unemployment stays high will also help to mitigate market concerns over potential inflation and rise in bond yields.

It is the backdrop of faster growth from recovery, picking up in earnings growth expectations amid historically low corporate borrowing costs and pent-up consumer demand that will sustain market gains, according to market watchers.

Investors are also likely willing to look past US tax increases if the level of stimulus spending that is being proposed leads to sustained and robust economic growth. The White House had indicated that the tax hike together with other measures to stop offshoring of profits would fund the infrastructure plan within 15 years.

Most economists expect a very strong second quarter which should be positive for stocks — unless interest rates rise too quickly.

Market watchers will be looking at the ISM numbers for the service sector, producer price index numbers and the minutes from the last Fed’s meeting to be released this week for any fresh comments on inflation, especially with fuel and commodities prices rising though the Fed Chair Jerome Powell had said after the March meeting that the Fed sees inflationary pressures as likely to be “transitory” in nature.

The 10-year Treasury yield had fallen back to the 1.62% level on Thursday after hitting 1.77% earlier in the week.

While rising bond yields have caused concerns in the market, some investment strategists have argued that a continued climb would not necessarily quell equity gains pointing to periods over the past 25 years when global equities still delivered positive returns despite the 10-year Treasury yields rising by more than 100 basis points.

That is because there can be two sides to rising yields — whether they are being driven by inflation fears or by optimism over the economy. Or if it is limited to assets or secular-driven inflation.  Overall, stable and low inflation remains a global phenomenon with most countries having rates below 3% in the past decades due to a combination of factors such as globalisation, automation and productivity gains.