October 7, 2022

Weekly Market Commentary October 3rd to October 7th 2022

September’s Nonfarm Payrolls report reaffirmed the belief that the Federal Reserve will remain aggressive raising rates as the labor market showed continued tightness. In a surprising and unwanted development for the Fed, the unemployment rate dropped to 3.5% from 3.7%, hitting a five-decade low. The drop was caused by a combination of higher-than-expected job growth (263k vs 255k) and a lower labor force participation rate (62.3% vs 62.4% expected). Average Hourly Earnings MoM and YoY, which help gauge employees negotiating power, matched expectations at 0.3% and 5.0%, respectively.

Earlier in the week, investors received two other important employment numbers, Jolts Job Openings, and Initial Jobless Claims. The Jolts reading plunged more than 10% to 10.1 million, the biggest monthly decline since April 2020. Initial Jobless Claims was slightly higher than expected at 263k compared to the 255k estimate.

The September ISM Manufacturing Index grew at its slowest pace in nearly two and half years as new orders contracted, companies slowed hiring and price increases decelerated. The index fell to 50.9, below the 52 figure that economists were expecting. Both new orders and employment recorded readings below 50, in contractionary territory. On the contrary, ISM Services modestly surpassed consensus estimates. The Services index showed strong demand and difficulty hiring, illustrating how bifurcated the economy is.

On Wednesday, OPEC+ announced a cut of 2 million barrels of oil per day (or 2% of the global supply) in its deepest cut since 2020. Saudi Arabia, the leader of the OPEC community, stated the cuts are necessary to support oil prices due to rising interest rates around the world. In response, WTI crude experienced its best week of price appreciation in half a year, up 16%.

Despite the volatility, equities markets finished higher for the week as they rallied off their 52-week lows. The Dow Jones Industrial Average fared the best out of the three major indices, up 2.0% while the S&P 500 finished up 1.5% and the Nasdaq lagged, only up 0.7%. In fixed income markets, the yield on the 10-Year U.S. Treasury was up .05% to 3.88%, the 10th straight weekly increase, now the longest streak since the 1970s.

Next week’s key economic releases include the FOMC minutes, Consumer Price Index (CPI) and Retail Sales.

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