The Stock Market and Bond Market Revisited: Investors Can Bet on the Fed’s Next-to-Leading Rate
October has more treats than tricks for investors. The market rallied to begin the fourth quarter, despite growing worries about the financial health of European banking giant Credit Suisse and weak economic data.
All but one of the 30 stocks on the index ended the day higher Monday, after they all fell on Friday. JNJ was Monday’s lone loser.
The Federal Reserve is raising interest rates in order to control surging prices, and investors are worried that could cause the economy to go into recession.
The stock market is down sharply this year. Extreme Fear is still being shown in the CNN Business Fear & Greed Index. Monday’s market rebound might be a bad news is good news rally.
Fears about rising stress at Credit Suisse
(CS) may lead the Fed to slow down its pace of rate hikes. The bond market investors bet on that as well. The yield on the benchmark 10-year US Treasury bond, which briefly topped 4% last week, has slid in recent days and fell again Monday to about 3.66%.
Just a week ago, traders were pricing in more than 70% odds that the Fed would raise interest rates by three-quarters of a percentage point for the fourth consecutive time at its November 2 meeting. As the probability of a half point increase increases, the chances of a rate hike that large is down to about 50%.
The Institute for Supply Management reported that its index of manufacturing fell from August and was less than it had been predicted to be. The Fed raises its rate to bring about the desired effect of slowing the economy and decreasing inflation.
“The economy is slowing – a reality that is increasingly apparent in the manufacturing sector. The good news is that there are welcome signs that prices are stabilizing,” said Jim Baird, chief investment officer with Plante Moran Financial Advisors, in a report Monday.
The S&P 500, Stocks, and Jobs: The First Month in the Labor Market, the Second Half of the Year, and the First Month of Inflation
Chevron
(CVX) was the top Dow stock, and the energy sector was the best performer in the S&P 500. Oil prices jumped after reports said that the world's major oil producers are considering a cut in production.
The British pound rebounded after the new UK government abandoned a plan to cut taxes for the wealthiest Brits.
In corporate news, Tesla
(TSLA) was one of the few stocks that didn’t take part in Monday’s rally. The company was the worst performer in the S&P 500 over the weekend because it reported disappointing third quarter delivery and production numbers.
Investors winced on Friday, as fresh data about the health of the labor market paved the way for the Federal Reserve to deliver another bumper increase to interest rates next month, raising costs for companies and weighing on stock prices.
The S&P 500 fell 2.5% on Friday as interest rate sensitive sectors were dragged down. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
The Labor Department said that there were 263,000 jobs created by American employers in September. The Fed’s efforts to cool the economy and reduce inflation are having an effect on hiring, but it was balanced against a drop in unemployment to 3.5 percent from 3.7 percent, reinforcing a sense that the labor market is still robust.
Typically a sign of economic strength, at the moment a resilient labor market is bad news for investors, as it points to the need for the Fed to raise interest rates even more than it already has. Costs for companies increase due to higher rates, and this in turn lowers stock prices.
The S&P 500 has 12 companies trading in the green. The real estate and energy sectors have been hit the hardest.
The broad economy and the job market were stronger than expected, making it a positive month for stocks. Investors were hopeful that the Federal Reserve could slow its historic pace of rate hikes and inflation could right itself sometime next year without tipping the economy into a recession.
There is a case in point about the December jobs report. December had 223,000 new jobs, but it was the lowest rate in over a year. And wages in December grew 4.6% on an annual basis, the slowest since August 2021. That may not sound like great news to you or me, but Wall Street took that reading as a sign the Fed’s medicine may be beginning to work.
The retail sales report Thursday that sent the stock market plunging was a worse-than- expected report by the Fed. The Dow lost 765 points Thursday, or 2.3%, the index’s worst day in three months. The S&P 500 lost 2.5% and the Nasdaq dropped 3.2%, their worst days in a month.
Wall Street and Wall Street Questions: What Do We Really Need to Say About the Cosmic Microeconomic Problems? A Commentary on Adobe, Facebook, and Meta
Adobe and Facebook parent company Meta are the markets largest gainers today, up 3.6% and 3.4%, respectively. Adobe shares soared after the company reported better-than-expected quarterly earnings and guidance. Meta, which is still down nearly 65% for the year, saw a tick after JPMorgan upgraded shares of the company to neutral from overweight.
Strong jobs reports, robust manufacturing data, still-hot consumer spending. Any time America reports its economy is strong, Wall Street has a freak-out.
John Leer of Morning Consult explains that as the economy continues to grow, it puts more pressure on the Federal Reserve to raise interest rates.
The supply chain chaos and the labor shortage are adding to economists and Wall Street confusion. Conventional economic wisdom needs to be thrown out of the window because of these problems. We don’t know what to do with any of this. There are no easy solutions.