As we roll into the final stretch of 2023, the economic landscapes continue to unfold new narratives. But is the monetary ball rolling in a new direction? After three tough months across equity and fixed income markets, this week was a welcome respite. With new data from JOLTs, Non-Farm Payrolls, the ISM Purchasing Managers Index (PMI), and the Fed meeting, there is plenty to look at.
The JOLTs survey for October reported 9.55 million open jobs, marginally surpassing expectations, yet the figures hint at slowing momentum. Layoffs are rising, hiring is trailing off, quits are diminishing, and job openings are moving downward. In addition, the Non-Farm Payrolls report showed only 150K new jobs and a slight increase in unemployment to 3.9%. While monthly variances are common, the overarching trend is hard to overlook: labor markets are easing off the gas, edging closer to equilibrium compared to a year ago.
In tandem, the ISM Manufacturing PMI for October plummeted to 46.7 from a 10-month peak of 49 in September, falling short of consensus, marking the eleventh straight month of contraction in the U.S. manufacturing sector. The dip underscores the ripple effect of the Federal Reserve’s heightened borrowing costs (and possibly the now-resolved UAW strike), posing further challenges to the resilience of U.S. goods producers.
Transitioning our gaze to the Federal Open Market Committee (FOMC), the recent meeting didn’t unveil any significant policy shifts. With no substantial amendments to the statement nor an update on the Summary of Economic Projections (SEP), all eyes were on Chair Powell’s presser for insights. Although the session didn’t offer much excitement, he did reveal a few nuggets of information. Chair Powell exuded a relaxed demeanor, making it abundantly clear that while rate cuts are not on the discussion table, with rates increasing quickly over the last few months, the markets are doing some of the Fed’s work for them.
Amidst these significantly tightened financial conditions, the FOMC is contemplating whether they can forego a final rate hike—a notion Powell seemed to resonate with. And the markets took a favorable view to the slightly dovish tone, with a strong response Wednesday onward. As we await two more inflation prints before December’s meeting, the FOMC is content to stand pat. Only time will tell, but the early indications are we have seen the end of this rate hiking cycle, and the ball may just be starting to crest the hill.
Economy
- After three tough months for financial markets, this week felt much better, with the S&P 500 up 5.9%, the Nasdaq up 6.6%, and the small-cap Russell 2000 up 7.6%. The week started off strong and kept going as Chair Powell seemed slightly more dovish compared to recent meetings.
- The number of job openings increased by 56K from the previous month to 9.55 million in September, reaching the highest level in four months and exceeding the market consensus.
- Private businesses in the U.S. added 113K workers to their payrolls in October, slightly below market expectations of a 150K increase and following a previous gain of 89K.
- ISM Manufacturing PMI slipped to 46.7 in October, pointing to the eleventh consecutive contraction in the U.S. manufacturing sector.
- The S&P Global U.S. Manufacturing PMI was confirmed at 50.0 in October, slightly improving from 49.8 in September. New orders increased for the first time in six months.
- The U.S. economy added 150K jobs in October, about half of a downwardly revised 297K in September, and below market forecasts of 180K.
- The unemployment rate in the U.S. increased to 3.9% last month, exceeding market expectations and the previous month’s figure of 3.8%. This marks the highest jobless rate since January 2022.
Stocks
- U.S. equities were in positive territory. Real Estate and Financials were the top performers, while Energy and Consumer Staples lagged. Growth stocks led value stocks, and small caps beat large caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield decreased 29 basis points to 4.56% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by corporate bonds and government bonds.
