November 4, 2022

Weekly Market Commentary October 31st to November 4th 2022

In a time when good news may mean more bad news, this week’s important data releases saw a strong jobs report on Friday, which followed decent Institute of Supply Managers (ISM) results in both manufacturing and services earlier in the week. Both were good news for the economy, but bad news from a market standpoint as the FOMC (the “Fed”) is likely to keep its foot on the pedal in battling inflation despite the fourth consecutive 75 bps boost in short term rates on Wednesday.

Nonfarm Payrolls came in at 261k newly created jobs when consensus was calling for around 200k. And the prior month was revised upwards by 52k. In any other time period, we would likely have seen markets rally on this news along with the current administration championing the success of their job-creating programs. But as of Friday afternoon, markets were down on the week due to the overarching concern that the Fed will use this data as fuel to push rates higher. They will likely need to see some slowing of the economy before they reevaluate their strategy. The unemployment rate did tick up to 3.7%, but that is coming off historic lows and we would need to see more of an upward trend before concluding that higher rates are having the Fed’s desired effect. Also in the employment category, Initial Jobless Claims came in at 217k which is pretty flat compared to the prior few weeks. This is a very telling stat for the Fed: rising rates have not produced the lay-offs indicative of a slowing economy.

As mentioned earlier, both ISM Manufacturing and Services came in as expansionary, with Manufacturing beating the forecast and Services coming slightly under predictions. Still, Services at 54.4% represents a very strong number here and again, the Fed wants to see its tightening monetary policy slow the economy.

In financial markets, continued rate-hike fears sent equities down for the week across the board as the S&P 500 dropped 3.3%; the Dow Jones Industrials fell 1.4%; and the tech-heavy NASDAQ lost 5.7%. In the fixed income markets, more bad news. The yield curve remains inverted from the 1-Year Treasury Bill through the longest part of the curve. Bond prices suffered as rates were up across the curve for the week with the 2-Year U.S. Treasury hitting 4.67%; the bellwether 10-Year U.S. Treasury at 4.17%; and the 30-Year bond at 4.27%.

Next week, look for the all-important Consumer Price Index (CPI) data for October, more weekly employment news, and the U Michigan Consumer Sentiment report.

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