Despite a rally on Monday and Tuesday, stocks ended October lower for the third month in a row.  The Federal Reserve met and chose to leave short term rates unchanged but left the door open to additional rate increases.  The 10-year treasury bond yield had risen nearly a percentage point on Wednesday, since the prior meeting, which increased borrowing costs.  FED officials want to see what effect this will have on inflation before deciding on additional rate hike(s).  However, since the FED announcement Wednesday, bond yields fell sharply despite inflation remaining firmly above the FED’s 2% target and economic growth that is strong.  A couple of economic surprises propelled stock and bond gains through week’s end.  First, was large increase in third quarter productivity causing a decrease in until labor costs.  Second, was a lower-than-expected jobs gain number for October.  Also boosting the markets, third quarter earnings are coming in, on average, positive from a year earlier after several quarters of year over year declines.

It remains to be seen if the FED will hike rates in December.  We would likely need to see continued improvement in inflation and a softening of the economy by the next meeting.  That may not happen given the strength we have seen with the firming of purchasing manager’s indices, and expansion in construction, manufacturing and housing.  Also, the October decline in job were negatively affected by the autoworker’s strike.  The FED will be closely watching the employment and inflation numbers before the December meeting.

Also, traders seem to be discounting geopolitical risk.  If Hezbollah and Iran enter the war with Israel, this would be a negative catalyst for the markets. 

Treasury bond yields fell sharply with the 30-year bond yield at 5.703% and the 10-Year note at 4.525%.  Freddie Mac reported that the average 30-year mortgage rate fell to 7.76%.  Crude oil fell to $80.99 a barrel and natural gas rose to $3.766 per MMBTUs.  The U.S. dollar index fell to 105.10 and gold fell to $1999.90 an ounce.

• S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index rose 0.43% in August and is up 2.57% from a year ago.
• S&P Global released its purchasing manager’s indices for October.  Keep in mind that anything over 50 represents expansion and anything under 50 represents contraction.
  • U.S. manufacturing PMI rose from 49.8 to 50.0.
  • U.S. services PMI rose from 50.1 to 50.6.
  • China manufacturing PMI fell from 50.6 to 49.5.
  • China services PMI rose from 50.2 to 50.4.
  • Japan manufacturing PMI rose from 48.5 to 48.7.
  • Eurozone manufacturing PMI fell from 43.4 to 43.1.
  • Canada manufacturing PMI rose from 47.5 to 48.6.
  • Mexico manufacturing PMI rose from 49.8 to 52.1.
• The Commerce Department reported:
  • Construction spending rose 0.4% in September and is up 8.7% above a year ago.

• • New orders for manufactured goods rose 2.8% in September.

• The Labor Department reported:
  • Employment costs rose 1.1% in the third quarter and 4.3% from last September..
    • Wages and salaries rose 1.2% for the quarter and 4.6% from a year ago, down from 5.1% year over year in September.
    • Benefit costs rose 0.9% for the quarter and 4.1% from a year ago, down from 4.9% year over year last September.
  • In September, the number of jobs openings was little changed at 9.6MM.
    • The rate of job quits was unchanged at 2.3% for the month.
  • Labor productivity rose 4.7% in the third quarter, the biggest increase since the third quarter of 2020.
    • Hourly compensation increased 3.9%.
    • Unit labor costs decreased 0.8%.
  • The U.S. added 150,000 jobs in October, less than expected. 
    • The unemployment rate was little changed at 3.9% in October.
    • Hourly wages rose 0.2% in October and are up 4.1% from a year ago.
    • The average hours worked per week fell from 34.4 to 34.3 hours.
    • The labor force participation rate (percentage of working age adults) fell for the first time in a year from 62.8 to 62.7.
  • Seasonally adjusted first-time claims for unemployment were 217,000, an increase from the previous week’s revised level of 212,000.
    • The 4-week moving average of claims, designed to smooth out volatility, was 210,000, an increase of 2000 from the previous week’s revised level. 
    • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil was unchanged at 13.2MM BPD.
  • Natural gas storage rose 79BN cubic feet and is above the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs fell 8 to 496.  The number of active natural gas rigs rose 1 to 118.
• Factset reported with 81% of S&P 500 companies reporting 3^rd quarter earnings, the blended earnings increase from last year is 3.7%.

Please call us if you have any questions.

Loren C. Rex, CFP^®, MA                                                                      Erik A Smith, AIF®

Founder / Emeritus                                                                            President & C.E.O.                                  

These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.

Sources:

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

https://ir.eia.gov/ngs/ngs.html

https://www.freddiemac.com/pmms

https://www.wsj.com/market-data?mod=nav_top_subsection

https://bakerhughesrigcount.gcs-web.com/na-rig-count

https://www.census.gov/economic-indicators

https://www.bls.gov/

https://www.spglobal.com/spdji/en/index-announcements/article/sp-corelogic-case-shiller-index-continues-to-trend-upward-in-august/

https://www.pmi.spglobal.com/public/release/pressreleases