GENERAL MARKET NEWS
The September employment report showed 263,000 jobs added during the month, which helped drive the unemployment rate down to 3.5 percent. This development further supports the Federal Reserve (Fed)’s trend of outsized interest rate hikes, as a higher unemployment rate is likely required to see meaningful cooling of inflation. As we approach the Fed’s November 1–2 meeting, the debate continues between those who think more must be done to fight stubbornly high inflation and those who think rates may be increasing too quickly for the economy to handle. The aforementioned employment report likely bodes well for the Fed to continue their aggressive rate path. Along with many other Fed officials, Fed Governor Lisa Cook acknowledges the relevance of both arguments. “Although lowering inflation will bring some pain, a failure to restore price stability would make it much harder and much more painful to restore it in the future,” said Cook. “It is critical that we prevent an inflationary psychology from taking hold.” The yield curve saw some movement over the course of last week but finished roughly where it started. The 2-year, 5-year, 10-year, and 30-year landed at 4.31 percent (up 10 bps), 4.15 percent (up 11 bps), (up 9 bps), and 3.85 percent (up 9 bps), respectively.
The equity was up on a week of mixed trading. The markets moved higher the first two days of the week but reversed heavily on Friday following a better-than-expected employment report. The report adds more fuel to the inflationary fire that the Fed has been trying to douse with three consecutive 75 basis point (bp) rate hikes. This week will see the start of earnings season, which will be closely watched as investors look to see current earnings as well as future earnings guidance. Last week, we saw the latest earnings preannouncement from Advanced Micro Devices (AMD), which sent the stock down by 7.77 percent. Earnings have been revised down at a greater rate than historical norms for last quarter, but two questions remain: So they have more to go? What do current valuations look like given these lower earnings?
Monday saw the release of the ISM Manufacturing Index for September. The index came in weaker than expected at a 50.9 level below that of the 52.0 level expected. This is a diffusion index that takes surveys from numerous industries to provide an overall gauge on the manufacturing side of the economy. A level above 50 is considered expansionary, whereas a level below 50 is considered contractionary.
Wednesday’s ISM Services index fared well, coming in at a better-than-expected level of 56.7 versus an expected level of 56. The result shows a services segment of the economy that is seeing a modestly more favorable outlook than that of its manufacturing counterpart.
On Friday, the much-anticipated (and better-than-expected) employment report for September was released, which showed 263,000 non-farm payrolls added versus 255,000 expected. The unemployment rate fell from 3.7 percent to 3.5 percent, leading to a sell-off in bonds and equities as it provided additional runway for continued rate hikes from the Fed.
WHAT TO LOOK FORWARD TO
This week’s data releases will be highlighted by a double header of inflationary data and consumer data.
Wednesday will see the release of Producer Price Index data. Economists expect to see producer prices rise in September after declining in August, although they are set to slow on a year-over-year basis. This will be followed by the much-anticipated Consumer Price Index data for September on Thursday. Consumer prices are expected to increase modestly during the month; on a year-over-year basis, however, consumer inflation is expected to slow compared to August.
Finally, the week will wrap Friday with September retail sales and the University of Michigan Consumer Sentiment preliminary report for October. Retail sales are expected to rise in September, which would mark two consecutive months with sales growth. Consumer sentiment is set to improve for the fourth straight month in October.
|MSCI Emerging Markets
|Fixed Income Index
|U.S. Broad Market
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Authored by the Investment Research team at Commonwealth Financial Network.
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