Last Updated 4:15 PM EST
Stock indices finished Friday’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 fell 2.11%, 2.8%, and 3.9%, respectively.
The technology sector was the session’s laggard, as it fell 4.12%. Conversely, the energy sector was the session’s leader, with a loss of 0.74%. In addition, WTI crude oil surged above $90 per barrel.
Furthermore, the U.S. 10-Year Treasury yield increased to 3.88%, an increase of 5.2 basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 4.31%.
The Atlanta Federal Reserve updated its latest GDPNow reading, which allows it to estimate GDP growth in real time. The “nowcast” becomes more accurate as more economic data is released throughout the quarter. Currently, it estimates that the economy will expand by about 2.9% in the third quarter.
This is higher than its previous estimate of 2.7%, which can be attributed to today’s U.S. Nonfarm Payrolls report from the U.S. Bureau of Labor Statistics, along with the U.S. Census Bureau’s wholesale trade report.
The last few updates represent a significant reversal from September when the estimate was around 0.3% growth for the quarter. At this point, it appears that the U.S. economy had a strong third quarter following two consecutive quarters of decline.
Losses Accelerate Heading into the Close
Last Updated 3:00 PM EST
Stocks are negative heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 2.2%, 2.7%, and 3.7%, respectively.
Like the U.S., Canada reported its employment change numbers for the month of September, which also came in higher than expected. The Canadian economy added 21,100 jobs compared to the forecast of 20,000. This ends a three-month decline that saw the country lose roughly 114,000 jobs during that timeframe.
However, a deeper look into the numbers shouldn’t give investors much to be excited about. Of the 21,100 new jobs, 15,400 were part-time. That means that only 5,700 people found full-time employment.
It’s also worth noting that the majority of these gains came from the education sector. This is because the new school year in Canada begins in September. As a result, the positive result doesn’t inspire any real confidence.
This suggests that the Bank of Canada’s interest rate hikes are indeed slowing down the Canadian economy. As the United States’ largest trading partner, this will eventually cause ripple effects within the American economy.
Stocks Fall as Bond Yields Rise
Last Updated 12:00 PM EST
Stock indices remain in the red halfway into today’s trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 1.6%, 2.1%, and 3%, respectively.
The technology sector (XLK) is the laggard so far, as it is down 3.4%. Conversely, the energy sector (XLE) is the session’s leader, with a gain of 1.1%.
WTI crude oil pushed above $90 per barrel as concerns about production cuts continue to give the commodity positive momentum.
Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 3.85%. This represents an increase of more than two basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 4.29%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -44 basis points.
Stocks in the Red after Economic Data Reports
Last Updated 10:05 AM EST
Stocks are in the red to start Friday’s trading session. As of 10:05 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 1.7%, 2.2%, and 2.8%, respectively. Investors who may be on the lookout for a wage-price spiral may have reason to be relieved after the Bureau of Labor Statistics released its Average Hourly Earnings report, which measures the month-over-month change in wages.
A wage-price spiral is caused when the price of goods increases as a result of higher wages but also leads to workers demanding higher wages as a result of the higher prices. As a result, it creates a perpetual loop of price and wage increases.
A way investors can gauge the presence of a wage-price spiral is by comparing average hourly earnings to inflation. If earnings are higher than inflation, it could be a warning sign that the loop is beginning to form.
Wages grew 0.3% in September compared to the previous month, in line with estimates. The bad news is that the most recent consumer price index saw growth of 0.1% month-over-month, which was mostly caused by a decrease in energy and food prices. However, when looking at the core consumer price index, the last reading was an increase of 0.6% month-over-month, greater than wage growth.
However, the most recent CPI numbers are from August. Nonetheless, economists’ forecasts for September’s inflation numbers paint a similar picture. Core CPI, which is probably the better metric to use when comparing to wage growth, is expected to come in at 0.5%, which is higher than wage growth.
If economists are right, or inflation surprises to the upside, we could continue avoiding a wage-price spiral.
Stocks in the Red after Nonfarm Payrolls Report
Last Updated at 8:39AM EST
U.S. stocks were in the red on Friday, as the nonfarm payrolls data came in.
The Dow Jones Industrial Average (DJIA) dropped by 1.2%, while the S&P 500 (SPX) declined by 1%, as of 8:39 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) dipped 0.7%.
While the forecast for non-farm payroll employment was expected to increase by 250,000 during September, it actually increased by 263,000. However, this expansion was the smallest since April of last year. The unemployment rate was forecasted to hold at 3.7% but went down to 3.5%.
First Published at 7:27AM EST
U.S. stock futures were mixed early on Friday, as traders processed various signs of a serious economic slowdown.
Dow Jones Industrial Average (DJIA) futures rose 0.21%, while those on the S&P 500 (SPX) gained 0.05%, as of 7.14 a.m. EST, Friday. Meanwhile, Nasdaq 100 (NDX) futures dipped 0.24%.
Several economic data revealed that major sectors of the economy are slowing down as a result of inflation combined with interest rate hikes, which indicates that the Federal Reserve’s plan has started to show results. However, investors are somewhat sensitized to the fact that the Fed will likely not change its stance until a few months of deflation are realized, which is not likely to happen by the end of this year at least.
On Thursday, the S&P 500, the Dow, and the Nasdaq 100 closed the regular session with losses of 1.02%, 1.15%, and 0.76%, respectively. The only sector that ended in the green was energy, up 1.82%.
Pressure from rising bond yields further weighed on stocks. The yield on the 10-year Treasury note topped 3.8%, whereas the more policy-sensitive two-year yield, crossed 4.2%.
Labor Market Might Have Started to Cool
On Wednesday, a report from ADP (NASDAQ:ADP) revealed that 208,000 jobs were added in the private sector in September, indicating a strong labor market. Nonetheless, investors are now anxiously waiting for the Friday jobs report by the Bureau of Labor Statistics, which will give us a more credible view of how the labor market fared last month. A Dow Jones survey found that economists expect 275,000 additional payrolls in September, with the unemployment rate remaining steady at 3.7%.
Any good news on part of the labor market can mean bad news for investors. Meaning, a strong labor market might feed more aggressiveness toward the Fed’s monetary tightening policy.
However, on Thursday, the initial jobless claims for the week ended October 1 revealed more claims on unemployment benefits than expected. Notably, 219,000 initial jobless claims were revealed by the US Department of Labor (DOL) for last week, up from the previous week’s revised count of 190,000 and higher than the market expectation of 200,000. This hints at a labor-market slowdown.
The DOL also said that in August, U.S. employers trimmed vacant positions by 10% compared to the preceding month, and increased lay-offs, again pointing at a cooling labor market.
“More Needs to be Done”, Says Fed Official
Ahead of the consumer price index (CPI) for September due out on October 13, Fed governor Lisa Cook reiterated that the Fed will wait for consistent cooling of inflation to ease its stance.
Moreover, another Fed governor, Christopher Waller, stated that the central bank is likely to keep increasing interest rates until early 2023. He also mentioned that he is encouraged to see some signs of policy-induced economic slowdown, which has been the Fed’s goal since the beginning of this year. However, he still believes that more needs to be done to effectively bring the economy to a clear path to the Fed’s 2% inflation rate goal.
Meanwhile, mortgage rates also dropped for the first time since August, indicating a cooling housing market. Mortgage company Freddie Mac (OTC:FMCC) revealed that the average 30-year fixed rate was 6.66% this week, inching lower from 6.7% last week. Nonetheless, the rate is still hovering near multi-year highs.
IMF to Cut Growth Outlook
It was also revealed on Thursday that the International Monetary Fund (IMF) expects lower global economic growth in 2023 than the previously guided 2.9%. The institution is yet to set a revised estimated rate. For this year, global economic growth is expected to stand at 3.2% year-over-year, down sharply from 6.1% in 2021.
The Managing Director of the IMF, Kristalina Georgieva, also encouraged policymakers across the world to take more steps to fight inflation and avoid long-lasting impacts. This also creates a strong case for the Fed to pull interest rates high enough to slow economic activity and cool inflation.
Volatility to Continue
Markets are expected to remain volatile until the Fed shows signs of pivoting, which is not likely to happen until next year, or at least until interest rates reach 4.4% to 4.6%. Moreover, a near-term bear case is expected to remain intact at least until a few months of consistent deflation is achieved through policy tightening efforts.
