Financial Update: October 7, 2024
Last week was one of anticipation in the financial markets as October and the fourth quarter began. All attention turned towards Friday’s payroll data — the crown jewel of the week. The first week of October trading showed us a slightly positive week in the S&P 500, as government bond yields rose and the U.S. dollar surged.
Summarizing last week’s trading, the large-cap S&P 500 gained 0.22%, the Nasdaq 100 rose by 0.13%, and the Dow Jones Industrial Average was marginally higher by 0.09%.
Huge Jobs Data
Without a doubt, the big data last week was Friday’s nonfarm payrolls, which came in as a monstrous outsized surprise to the upside. This indicates that the Fed’s 50 basis point cut could potentially already be stimulating the labor markets.
The stimulation, intended by the Fed due to weakness in recent labor market data, was on full display with 254,000 jobs created versus Dow Jones estimates for 150,000.
The unemployment rate declined by a tick to 4.01% from the previously reported month of 4.1%. Average hourly wages also rose by 0.4% in the month and are higher by 4.0% compared to one year ago.
It’s The Revisions, Folks
Recent labor market concerns stem primarily from downward revisions (and overall lower job creation) going back over the last year to the tune of a decrease of 818,000 jobs.
In this month’s data release, however, the polar opposite ensued. The revisions this time showed August’s job creation total tacking on 17,000 additional jobs, and July was also revised upward by 55,000.
So, given recent downward revisions and the most recent upward revisions, payroll data is currently in a state of flux and will be analyzed heavily by traders and investors. Perhaps the data skew has added to the lingering element of uncertainty present in markets this October.
Jobs Number Market Reaction
Highly anticipated to gauge how the Fed and economy are doing, the jobs report was interpreted as bullish for stocks — at least on Friday. But buying was somewhat tame after the open, with the S&P 500 tacking on 0.90% on the session, making the S&P 500’s week positive. In contrast, a super bullish reaction to a jobs number could bring the SPX up, say, 2% for the sake of comparison.
Analysis of the jobs data is open to interpretation. Jobs created exceeding expectations and upward revisions to previously reported data indicate a strong economic backdrop and a resilient American economy.
Conversely, the excess in job creation could be interpreted as the rate cut making the economy run too hot. Could inflation concerns pop up in the future? It is just too early to tell, and more data is needed to gain consensus.
The chances of a 25-basis-point cut at the Fed’s November meeting closed the week at 96.2%, representing a large movement from the 46.7% probability at the beginning of the week. Chances of a 50 basis-point cut at the November meeting were just 2.6%.to close the week. There are varying interpretations of what a 50-basis-point cut could do for markets.
U.S. Dollar Rallies
Safe haven buyers were said to have emerged as Middle East tensions gained steam last week. The U.S. Dollar Index reached levels not seen since August.
After testing support near the psychologically critical 100.00 level, the U.S. Dollar index found buyers last week as government bond yields advanced higher.
Some assets, such as gold and silver, tend to have an overall inverse correlation to the direction of the U.S. dollar.
But metal prices remained strong last week, silver more so than gold as gold finished the week slightly in the red. Still, gold remains overall resilient to last week’s powerful move upwards in the dollar — at least so far.
Escalating tensions and the consensus that the U.S. economy is resilient and strong contributed to the U.S. dollar’s rally this week.
Government Bond Yields Rise
The 2-year yield added around 36 basis points on the week and closed the week near 3.926%. Tens were also sold last Friday, contributing to the yield jumping around 23 basis points on the week, closing the week near 3.981.
The yield curve continued to remain normalized (uninverted) last week, although it lost ground in that regard. The gain in yield on twos outpaced the tens, narrowing the 2/10 yield spread to just four basis points.
This Week = CPI
The first week of the month showed us a jobs number, with jobs data revisions affecting the likelihood of the Fed doing a 25-basis-point rate cut versus a 50-basis-point increase. This week, we get Producer Price Index (PPI) and CPI (Consumer Price Index) data. Early expectations for headline CPI point to an annual increase of 2.3%, getting closer to the Fed’s 2.0% target.
As usual, all eyes will be on CPI this week, as traders will continue handicapping the odds of a 25- vs. 50-basis-point rate cut. Should inflation dip to 2.3% annually versus the last print of 2.5%, it may appear that the Fed is finishing up its inflation battle, but let’s remember that the Fed’s inflation target is 2.0%.
If inflation runs higher than expected, it could indicate that a larger than 25 basis-point-cut could be needed, perhaps to the market’s delight.
Takeaway
October is underway in this election season! As the U.S. equity indices started October with moderate gains last week, this week has the data releases that are needed to shape near-term market direction and consensus.
Rising bond yields and the U.S. dollar last week are in focus right now. As always, we will be staying on top of the latest developments to keep you informed.
If there is anything on your mind regarding the markets and your strategy, let me know, and we can connect to discuss. I’m here as a resource when you need me:
Disclosure:
This material provided by Levitate. Levitate is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc. Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance does not guarantee future results. The information provided has been derived from sources believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does is constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned.
Disclosure:
This material provided by Levitate. Levitate is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc. Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance does not guarantee future results. The information provided has been derived from sources believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does is constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned.