October 7, 2024

“The key to making money in stocks is not to get scared out of them.”

Peter Lynch

We closed another successful week, U.S. stocks rallied Friday on fresh signs of a strong labor market, with the Dow Jones Industrial Average ending at a record peak while the bond market dialed back recession fears. Here are the numbers: the S&P 500 finished up .43%, the Dow Jones Industrial Averal gained .15%, the Nasdaq added .38%. Internationally, the FTSE 100 has a tough week down .48%, and the MSCI-EAFE lost a fractional .02%. The 2-year Treasury paid 3.924% and the 10-year finished with a yield of 3.969%.

So, what was the news that moved the market? From Barron’s Nicholas Janinski, the release of stronger-than-expected September jobs data by the Bureau of Labor Statistics last Friday added fuel to arguments in favor of a soft landing, in which inflation returns to 2% without a meaningful economic downturn or significant job losses. It was an unambiguously strong jobs report this morning. The unemployment rate fell for a second month in a row, to an unrounded 4.051%, within a whisker of 4%. Hiring surged, with nonfarm payrolls up by 254,000 in September—the largest monthly gain since March—while revisions to July and August totals added a combined 72,000 jobs. Employment growth was widespread across sectors and industries.

Adding to the good news for workers was a 4% increase in wages from a year earlier—versus the 2.3% rise in the consumer price index forecast by economists over the same period. That data will be released next Thursday morning.

The problem is all the good news on jobs was in the government sector.  The private sector actually lost 39,000 manufacturing jobs.  The caution is the reporting continues to try and provide fodder for the administration. So much so that Joe Biden actually showed up in the White House briefing room to the surprise of all the White House reporters. There is much speculation about the reason he wanted to announce the suspension of the Long Shoreman’s strike and tout last Friday’s jobs numbers, stepping on Vice President Harris’ campaign rally in Michigan. He took the occasion to make sure the Washington Press Corp knew that Vice President Harris was intimately involved in the economic policy, much to the delight of the Republicans. My favorite tweet was “this message was approved by Donald Trump.” Can it get any crazier?

Other economic news, PIMCO advisor briefing stated “following its September meeting, the U.S. Federal Reserve announced its first interest rate cut since 2020 – and did it with a bang. The central bank lowered the policy rate by 50 basis points (bps) and slashed its forward rate projections. The new median projection sees the policy rate ending 2025 in the range of 3.25%–3.5%, which is 150 bps lower than the current range and much closer to long-run neutral monetary policy estimates. We believe the Fed is on a path to ease policy by 25-bp increments at each of its upcoming meetings. However, the Fed remains data dependent. If the labor market deteriorates more quickly than expected, we expect the Fed to cut more aggressively.

The Fed’s actions suggest that it saw a shift in the balance of risks around inflation and employment, warranting a faster adjustment toward neutral than many officials had previously thought. Historically, looking at Fed cycles since the mid-20th century, an initial rate cut of 50 bps has typically preceded or signaled a recessionary easing cycle – that is, a generally sharper, deeper, or more prolonged series of rate cuts aimed at bolstering a struggling economy.

Does this mean we are out of the woods economically yet? Not even close, there are several underlying issues still brewing underneath.  The big one is where is the price of oil going? (possibly with Mid-East tensions and War to $100 a barrel as Market Watch reports: Options traders are making bullish bets that oil could soon hit $100 a barrel on fears tensions between Israel and Iran could spark a wider Middle Eastern conflict that threatens crude flows). Election results and the following government policy on taxes, regulations, and foreign affairs all could help or hurt the markets in the coming year. So, we still expect market jitters to continue based upon the news. The economic impact of the delay in the longshoreman’s strike is welcome news particularly for the poor people devastated by hurricane Helene. (A special Shout out to the several clients and friend who hit the road to North Carolina to help out.)

More in our quarterly reports to our clients this week, as always, we encourage all to pay attention to the election and help in any way you can for the Hurricane Helene victims.  The devastation is beyond belief, (I have a son, daughter in law and 4 granddaughters who were in its path but fortunately got out and were spared much of the destruction. They were, Thank God, some of the lucky ones.)

Mike