Week in Review: October 6, 2023

October 10, 2023

Recap & Commentary

Markets (S&P 500) eked out a small weekly gain thanks to a strong rebound Friday following the September jobs report. For much of the week, however, markets continued to struggle in the face of steadily rising interest rates and attendant concerns related to the impact of those rates. For the week, the 10-Year Treasury yield rose 0.22% to end at 4.80%, a new 16-year high.

Markets initially sold off on Friday following the release of the September jobs report, before rebounding to end the day higher. The market’s vacillating reaction highlighted the different interpretations and implications of the data.  From a good-news-is-good perspective, the strong job growth demonstrated that companies remain constructive enough in their near- to medium-term outlooks to continue hiring at a relatively brisk rate. Further, the strong jobs growth should help bolster consumer sentiment and spending heading into the all-important holiday shopping season.  From a good news-is-bad perspective, the report likely solidified the Fed raising rates once more before year end.  That in turn could further inflame recent concerns about the economic impact of higher rates, including the possibility of a recession.

Though not of immediate concern to the markets, the historic vote in the House of Representatives to remove, for the first time in history, the House speaker reignited concerns of a government shutdown when the current continuing resolution funding the government expires in mid-November.

Economic Commentary

A busy economic calendar was highlighted by the September employment report which far exceeded expectations. Nonfarm payrolls increased 336K against expectations for a 170K increase. Additionally, figures for July and August were revised up by a combined 119K jobs. September’s job gains were broad based, led by increases in leisure and hospitality, and healthcare. In some good news for the Fed, wage growth rose a modest 0.2% during the month and 4.2% from a year ago, the smallest increase in 18 months. In the wake of the report, markets continued to believe the Fed will keep rates unchanged at their November meeting, pricing in a 70% probability of no change.

Manufacturing activity fared better than expected in September, while services activity was in line with expectations. The ISM manufacturing index remained slightly in contraction territory but increased to 49, beating forecasts for a reading of 48.  New orders and production both increased 2.5% since last month. In a positive sign for goods deflation, prices paid by suppliers declined by nearly 5%, though rising oil prices and the UAW strike could blunt momentum in future readings. The ISM services index remained comfortably in expansion territory with a reading of 53.6.  The new orders and business activity indices, considered to be the forward-looking components of the report, both continued to expand as they’ve done each month this year. The prices paid index was unchanged for the month at 59, in a sign that inflation remains an issue for businesses in the services sector.

Of Note

Shipping traffic through the all-important Panama Canal has slowed in recent months due to insufficient water. Though the canal connects two bodies of salt water- the Pacific and Atlantic oceans- its operation relies on man-made lakes whose water levels are currently sitting near historical lows due to Panama experiencing its driest year on record since 1950.

Market Indices   (As of 10/06/2023)

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