Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
Last week, a dovish Fed, falling bond yields and a “Goldilocks” Jobs Report led interest rates to fall and stocks to surge. The yield on the 10-year US Treasury has fallen over 40 basis points from 16-year highs hit back in mid-October. Meanwhile, the S&P 500 spiked almost 6 percent last week, its biggest weekly gain since November 2022. The index is still 5 percent below its July peak, though still up 13 percent year-to-date.
Last week provided a plethora of data that seem to suggest the Fed’s attempt to cool the economy and suppress inflation could be working. Friday’s Jobs Report showed that payrolls increased by 150K in October, missing expectations for a 179K gain. The August and September numbers were also revised lower by a combined 100K jobs. The unemployment rate ticked up to 3.9 percent, slightly higher than expected. We’re also seeing a moderation in wage growth. In October, average hourly earnings grew 4.1 percent on an annual basis, the slowest growth since the middle of 2021.
Interest rates, which have weighed on the stock market since mid-summer, fell on Friday following the softer-than-expected jobs report. The yield on the 10-year US Treasury fell 10 basis points to finish the week at 4.57 percent, down from the 5 percent high hit back in October.
Stocks also benefited from the Fed’s decision to hold interest rates unchanged on Wednesday, marking the second meeting in a row where the central bank has declined to hike rates. Though the decision was widely expected, the Fed also hinted it could be done raising rates for now, but didn’t rule out another increase. The subsequent drop in interest rates sparked a rally in equities.
Traders are now pricing in a 95 percent probability that the Fed will leave rates unchanged for the rest of the year, but do not expect the first rate cut until late-summer 2024.
Next week’s economic calendar is noticeably light, which is typical the week following the Jobs Report. On Tuesday we have Trade Balance. We have Wholesale Inventories on Wednesday. We finish the week off with Initial Jobless Claims on Thursday and the University of Michigan Sentiment report on Friday.
As always, we will be watching and reporting back to you next week. Thank you.