Week in Review: October 4, 2024

October 8, 2024

Recap & Commentary

Markets ended the week little changed following the release of a limited number of closely watched economic reports, comments on monetary policy by Fed Chair Jay Powell, and intensified fighting in the Middle East.

Speaking at a business conference on Monday, Powell said based on the current strength of the economy, interest rate cuts are “a process that will play out over some time” and “not something that we need to go fast on.” In his view, “If the economy performs as expected, that would mean two more cuts this year.” That had the immediate effect of reducing market expectations for additional rate cuts before year end from three to two. It also helped drive interest rates higher, with the 10-Year Treasury yield gaining over 0.20% during the week to reach its highest level since early August.

September’s employment report helped relieve, at least temporarily, concerns about the strength of the labor markets. Nonfarm payrolls added 223K jobs in September, far above the expected 125K. In addition, unlike most of the other jobs reports released this year, prior months’ data was revised up, not down, with new figures showing 72K more jobs were added in July and August than initially reported. The strength added further credence to the idea that the Fed can take a more measured approach to future rate cuts.

Oil gained over $6/barrel on the week as increased fighting between Israel and Iran-back Hezbollah, along with a direct large-scale missile attach by Iran against Israel, renewed the specter of a larger regional conflagration.

Economic Commentary

After growing concerns about cooling labor market conditions over the summer, September’s jobs report helped soothe investors nerves. Nonfarm payrolls added 223K new jobs, nearly twice the 114K jobs created in August. Unemployment fell 0.1% for a second consecutive month to 4.1%. In addition, average hourly earnings growth increased on an annual basis from 3.9% to 4.0%.

In a separate report, job openings rose in August for the first time in three months. Expectations had been for a decline of ~60K job openings. Instead, openings rose by ~330K suggesting that employers’ appetite for hiring remains intact. The ratio of jobs/unemployed individuals increased from 1.08x to 1.13x.

Manufacturing data released by industry group ISM showed the sector contracted for a sixth consecutive month in September and 22nd time in the last 23 months. Employment was particularly weak, contracting at its second fastest pace since 2020. New orders contracted for a sixth consecutive month, albeit at a slightly slower pace than in August. Prices fell into contraction territory for the first time this year, another sign of weakening demand.

Unlike manufacturing, ISM services data surprised to the upside in September, with the sector expanding for the third consecutive month, and at its fastest pace since February 2023. The improved activity was led by new orders which also accelerated at their fastest pace since February 2023. Employment was a notable laggard, contracting for the first time in three months.

Of Note

Scientists unveiled the first complete map of an adult fruit fly’s brain including all 139,255 neurons, linked by over 54.5 millions synapses. The results could provide scientists with greater insight into how the human brain works.

Market Indices   (As of 10/04/2024)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Consumer Sentiment
• Weekly Jobless Claims