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Posted October 6, 2023 at 9:45 am
The first week of October has not been a good week for the stock market. Entering today, the Russell 2000 is down 3.0%, the S&P Midcap 400 is down 2.7%, the Dow Jones Industrial Average is down 1.2%, and the S&P 500 is down 0.7%.
What about the Nasdaq Composite? It is flat for the week, which is good, but it is also a little self serving in the sense that it has been underpinned by gains in the mega-cap stocks. The Vanguard Mega-Cap Growth ETF (MGK) is up 0.7% for the week. That’s all well and good for those stocks, but in general, it has not been an all well and good picture for the stock market, evidenced by the 2.1% decline seen this week in the equal-weighted S&P 500.
The hope has been that the stock market is primed for a sharp rebound from an oversold position. That hope has been clouded, however, by the incessant rise in market rates, particularly long-term rates. As it so happens, it is another cloudy morning for the stock market because, well, the September employment report had an otherwise sunny disposition.
Nonfarm payrolls rose a much stronger than expected 336,000 (Briefing.com consensus 158,000) and upward revision to July and August summed to an additional 119,000 jobs than previously thought. That was a shocker for the market given the soft ADP employment change reading seen earlier this week, but to be fair, maybe it should not have been a shocker given that initial jobless claims have been running at low levels consistent with a tight labor market.
There was a bit of moderation in average hourly earnings growth to 4.2% year-over-year from 4.3% in August, but when that is balanced with the unchanged 3.8% unemployment rate, the dip in the U6 unemployment rate, and the clear and continued strength in hiring activity, this labor market is not going to be labeled a weak labor market.
The key takeaway from the report is that it bodes well for the economy. That is good news, yet that good news is apt to translate in the market’s mind into a stubborn Fed standing on guard to possibly raise rates again but certainly not cut them anytime soon.
The 2-yr note yield, at 5.04% just before the release, is up 10 basis points to 5.13%. The 10-yr note yield, at 4.74% just before the release, is up 16 basis points to 4.87%.
Currently, the S&P 500 futures are down 41 points and are trading 1.0% below fair value, the Nasdaq 100 futures are down 178 points and are trading 1.2% below fair value, and the Dow Jones Industrial Average futures are down 220 points and are trading 0.7% below fair value.
Notable headlines from the September Employment Situation Report:
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Originally Posted October 6, 2023 – Sunny labor market clouds interest rate outlook
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