Crazy Little Thing Called Politics (Market Recap Week Ending October 8)
Dow 34,746 +420 or 1.2% Nasdaq 14,579 +13 or 0.08% S&P 4,458 +34 or 0.78%
U.S. 10 Year Treasury Yield 1.605%, +13 bp or 8.8%
Debt Ceiling Drama
“All of which is to say, prepare for additional volatility next week and throughout October or at least until the debt ceiling is raised.” That was the ultimate sentence of last week’s recap and it proved prescient. The debt ceiling limit and the possibility of a government default weighed heavily on the markets both Monday and Tuesday until a short-term compromise was rumored, and the markets reversed sharply higher Tuesday afternoon. Unfortunately, the compromise only kicks the can down the road until December 3, at which time the Congress will have to revisit the issue yet again.
Where are all the Jobs?
When the debt ceiling compromise was confirmed on Wednesday, it appeared as if the rally was destined to continue through the close of the week until a seemingly horrible jobs report took the steam out of the advance. At first glance, the 194,000 jobs gained in September vs the 500,000 that economists expected appeared disastrous, but there were several mitigating factors to keep in mind. The survey is seasonally adjusted which makes for very volatile numbers month over month. Both July and August numbers were revised higher. Virtually all the job losses came from the government sector. There were improvements in the Leisure and Hospitality sector. Wages were up again. Unemployment fell to a post-pandemic low of 4.8%. However, that drop was attributed to people permanently leaving the job force, especially women, of which 384,000 dropped out of the labor force in September!
The fixed income markets will be closed on Monday, but earnings season will begin in earnest. Meme stock AMC Entertainment (AMC) opens the barrage on Monday and investors will be anxious to parse the new James Bond movie attendance figures. On Wednesday, the banks begin to report. On Thursday, jobless claims may fall under 300,000 for the first-time post-pandemic and the Producer Price Index will provide another inflation data point. JB Hunt (JBHT) reports on Friday which may give investors some insight into the continuing struggles of the global supply chain ecosystem.
Market Data Points Next Week
- Monday – AMC Entertainment (AMC) reports earnings.
- Tuesday – Job Openings and Labor Turnover Survey (JOLTS).
- Wednesday – JP Morgan (JPM), Blackrock (BLK) and Delta Airlines (DAL) report earnings. CPI, Core CPI, Federal Reserve minutes.
- Thursday – Morgan Stanley (MS), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) report earnings. Initial Jobless Claims. PPI.
- Friday – September Jobs Report (non-farm payrolls). Unemployment rate. Goldman Sachs (GS) and JB Hunt (JBHT) (a trucking company that may give insight to the current supply chain issues). September Retail Sales.
Last week’s trading…
Monday– Dow (323) to 34,003, Nasdaq (311) to 14,255, S&P (57) to 4,300.
- Tech was crushed today: a whistleblower gave Congressional testimony against Facebook, calling the company a “betrayal of democracy.” The balance of the sector was hit with the same themes that punished it during September; raising interest rates and inflation concerns.
- The 10-year U.S. Treasury yield rose to 1.488%.
- Factory Orders beat expectations at 1.2% vs 1.1% expected.
- St. Louis Fed President James Bullard, a non-voting member, continued his hawkish comments today, suggesting that core inflation would rise to 2.8% (above the Fed’s 2% target) and remain there for the entirety of 2022. Bullard wants tapering to begin as soon as possible and to conclude by March of 2022 to allow the Fed to raise rates, if need be, at that time.
Tuesday – Dow +311 to 34,314, Nasdaq +178 to 14,433, S&P +45 to 4,345.
- Nine of the eleven S&P sectors traded in the green today led by Financials, Communication Services and Technology.
- The 10-year U.S. Treasury yield rose 4bp to 1.53%.
- Both September Services PMI numbers beat expectations: Markit 54.9 vs 54.4 and ISM 61.9 vs 60.
- Pepsico (PEP +0.59%) beat earnings and revenue expectations despite labor shortages and supply chain issues and raised its full year guidance. The company has been passing their increasing costs onto customers and expects another price hike Q1 2022.
Wednesday – Dow +102 to 34,416, Nasdaq +68 to 14,501, S&P +17 to 4,363 .
- The markets were spiraling down hard this morning until it was reported that Senate Minority Leader, Mitch McConnell, had offered a compromise with regard to his party’s role in raising the national debt limit and thus potentially staying an unimaginable credit default of the United States.
- The ADP Employment Report showed a large jump in hiring in September with 568,000 jobs added vs the 425,000 median forecast and last month’s 340,000 print.
- Eight of eleven S&P sectors traded higher today, led by the defensive sectors: Utilities and Consumer Staples.
- Atlanta Federal Reserve Bank President continued the drumbeat of hawkish comments emanating from the Fed. He predicted near full employment and a singular rate hike by the end of 2022 and three interest rate hikes in 2023.
- The 10-year U.S. Treasury yield traded up 1bp to 1.54%.
Thursday – Dow +338 to 34,754, Nasdaq +152 to 14,653, S&P +36 to 4,399.
- While closing off their highs, markets rose strongly today on news that Senate GOP and Democratic leaders had agreed on a debt ceiling deal to delay defaulting on the U.S. government debt through December 3.
- Initial Jobless Claims were 326,000 vs expectations of 348,000 and last week’s slightly revised higher print of 364,000. This is the lowest print in 4 weeks.
- Ten of the eleven S&P sectors traded higher led by Consumer Discretionary, Materials, and Healthcare.
- The 10-year U.S. Treasury yield rose 3 bp to 1.571%.
Friday – Dow (8) to 34,746, Nasdaq (74) to 14,579, S&P (8) to 4,391.
- The September jobs report was extremely disappointing with 194,000 jobs added in the month vs expectations of 500,000 and August’s revised 366,000 number. A positive spin, however, was that most of the job losses came from the government sector while there were additions in the leisure and hospitality industries. The summer job numbers were also revised higher.
- The unemployment rate fell to 4.8% but that was largely attributed to discouraged job seekers dropping completely out of the market.
- Energy and Financials were the only S&P sectors to trade positively today.
- The 10-year U.S. Treasury yield rose 3 bp to 1.605%.
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