November 3, 2023

Weekly Market Commentary October 30th to November 3rd 2023

In a week full of meaningful economic data, we also had the FOMC meet and decide on interest rates. As expected, the committee voted to leave rates unchanged, maintaining the Fed Funds target range of 5.25%-5.50%. Powell’s comments were considered hawkish, albeit less hawkish than after recent previous meetings. When asked if the Fed has finished tightening, Powell replied, “We’re not confident that we haven’t; we’re not confident that we have.” Key metrics the Fed considers such as inflation, job growth, and GDP are not where the Fed wants them to be, however, are trending in the direction they want them to. Hence, the Fed’s ambiguous attitude. Based on the market’s reaction, investors seemed to like what they heard as equity markets rallied, yields fell, and rate cut probabilities moved up to mid-2024.

October jobs data came in weaker than expected, pointing to broad cooling in the labor market. Non-farm payrolls increased 150,000, hourly earnings increased 0.2% month-over-month, and unemployment ticked higher to 3.9%. These figures suggest some cracks are beginning to form in a jobs market that has been gradually normalizing, thanks to an improvement in labor supply and reduction in the pace of hiring over the past year. A household survey showed a more than 200,000 increase in those who either lost a job or completed a temporary one, as companies continue to tighten budgets by reducing labor costs and increasing efficiencies.

Manufacturing and services data also came in weaker than expected. ISM Manufacturing saw a reading of 46.7, dropping deeper into contractionary territory as October saw a pullback in demand, highlighted by a drop in new orders and lower production. ISM Services fell 1.8 points to 51.8, below consensus but still expansionary. However, the print adds further evidence that the momentum in the service sector, which has been exceedingly resilient, is beginning to fade.

The moniker “bad news is good news” was exemplified this week as equity markets had their best week of the year on weaker economic data and well received commentary from Fed Chair Powell. The S&P 500 finished 5.9% higher to 4,358, the Nasdaq finished 6.6% higher to 13,478, and the

Dow Jones finished 5.1% higher to 34,061. The 10-Year U.S. Treasury yield fell by 32bps to 4.52% and the 2-Year yield fell 16bps to 4.87%.

Next week’s economic data will be very light, with MBA mortgage applications and jobless claims being the biggest highlights.

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