(Bloomberg) -- Bonds climbed after as a weak manufacturing reading fueled speculation the U.S. Federal Reserve will have room to cut interest rates this year. Stocks fluctuated as a rise in tech outweighed a plunge in energy producers.

Longer-dated Treasuries outperformed after data showed U.S. factory activity shrank at a faster pace as output came close to stagnating.

“The Manufacturing ISM data reaffirmed several prevailing economic trends: decelerating inflation, slowing growth, and a tight labor market,” said Gary Pzegeo at CIBC Private Wealth U.S. “We should see higher odds of a rate cut later this year priced into interest rate futures.”

U.S. 10-year yields slid nine basis points to 4.4 per cent. The S&P 500 hovered near 5,280. A technical issue at the New York Stock Exchange resulted in erroneous trading volatility halts earlier Monday.

Oil tumbled as OPEC+ unexpectedly rolled out a plan to restore some production to the market this year. Bitcoin briefly topped $70,000.

“Thank goodness it’s Monday – at least from a bond-bullish perspective,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “There have been a few signs of stumbling in the real economy, albeit primarily on the consumption side. As a result, investors are on guard for indications that the downside trajectory is accelerating.”

With earnings season mostly in the rearview mirror, traders will focus on whether inflation is cooling or is stuck in a loop that will leave interest rates in “higher-for-longer’ limbo,” according to Chris Larkin at E*Trade from Morgan Stanley. “This week’s jobs report represents the next big test.”

In fact, traders will also be focused on a slew of labor-market readings this week, including Friday’s payrolls figures. That’s ahead of next week’s Fed decision, with U.S. policymakers expected to continue signaling no rush to cut rates. 

Swap contracts tied to upcoming meetings continue to fully price in a quarter-point rate cut in December, with the odds of a move as soon as September edging up to around 50 per cent and November also given high odds.

“Additional cooling in job openings this week would also help to bring home the message that the labor market is no longer a meaningful threat for near-term inflation dynamics,” said Oscar Munoz at TD Securities.

Macroeconomic signals suggest a coming slowdown or even a recession, but investors don’t seem concerned based on lofty stock market valuations and continuing positive sentiment, according to JPMorgan Chase & Co.’s Marko Kolanovic.

Risks from an increase in unemployment over past year, drop in home sales, and nearly two years of yield curve inversion are being shrugged off, with equity indexes at or near all-time highs, he noted. Upside for stocks will be limited during the summer due to an “inconsistency” between expectations for disinflation alongside a belief in “no landing” and earnings strength.

Meantime, Morgan Stanley’s Michael Wilson says his bull case is in play, for now. Rising government debt will continue to fuel spending and inflate asset prices in the short-term — including equities — as long as the bond market doesn’t signal any tension.

A contrarian equity sentiment indicator from Bank of America Corp. jumped by the most since late 2023 in May to a two-year high, indicating that negative attitudes toward U.S. stocks are no longer a tailwind.

The so-called Sell-Side Indicator (SSI), a gauge that measures Wall Street strategists’ average recommended US equity allocations, posted the largest increase since December last month, BofA head of U.S. equity and quantitative strategy Savita Subramanian said in a note to clients Monday.

“Extreme bearish sentiment is no longer a tailwind for the index, arguing for a tilt toward active stock selection strategies,” she wrote.

Corporate Highlights:

• GameStop Corp. surged as the Reddit account that drove the meme-stock mania of 2021 posted what appeared to be a $116 million position in the video-game retailer.
• Nvidia Corp. and Advanced Micro Devices Inc.’s chiefs showcased new generations of the chips powering the global boom in AI development, deepening a rivalry that may decide the direction of artificial intelligence design and adoption.
• JetBlue Airways Corp.’s sales performance for this quarter will be somewhat better than expected as the carrier works to improve operations and capitalize on “healthy overall demand trends.”
• Skydance Media plans to offer $23 a share to investors in Paramount Global’s voting stock as part of its plan to merge with the film and TV giant, according to people with knowledge of the matter.
• Bill Ackman’s Pershing Square aims to raise $25 billion for a new closed-end fund targeting US retail investors, which would more than double the fee-paying assets the firm manages, according to people with direct knowledge of the plans.
• A.P. Moller-Maersk A/S, a bellwether for global trade, raised its full-year profit forecast, saying the congestion in the Red Sea is having a larger than previously expected impact on the world’s supply lines, which in turn is boosting freight rates.

Key events this week:

• U.S. factory orders, JOLTS, Tuesday
• China Caixin services PMI, Wednesday
• Eurozone S&P Global Services PMI, PPI, Wednesday
• Canada rate decision, Wednesday
• U.S. ISM services, Wednesday
• Eurozone retail sales, ECB rate decision, Thursday
• U.S. initial jobless claims, trade, Thursday
• China trade, forex reserves, Friday
• Eurozone GDP, Friday
• U.S. unemployment rate, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 Index increased 0.1 per cent to 5,283.40 as of 4 p.m. New York time.
• The Dow Jones Industrial Average declined 0.3 per cent to 38,571.03.
• The Nasdaq Composite Index climbed 0.6 per cent to 16,828.67.
• The MSCI All-Country World Index advanced 0.5 per cent to 789.11.

Currencies

• The Bloomberg Dollar Spot Index was little changed at 1,251.67.
• The euro increased 0.5 per cent to $1.09.
• The British pound increased 0.5 per cent to $1.2803.
• The Japanese yen appreciated 0.7 per cent to 156.25 per dollar.
• Bitcoin advanced 2.1 per cent to $69,186.

Bonds

• The yield on 10-year Treasuries dipped 10 basis points to 4.40 per cent.
• Britain’s 10-year yield declined 10 basis points to 4.221 per cent.
• Germany’s 10-year yield dipped eight basis points to 2.58 per cent.

Commodities

• West Texas Intermediate crude sank 3.8 per cent to $74.05 a barrel.
• Gold strengthened 0.9 per cent to $2,347.48 an ounce.