Today’s market action was a rollercoaster, driven by a jobs report that outperformed expectations and fueled speculation about the Federal Reserve’s next move. The Dow Jones Industrial Average surged nearly 1%, a gain of about 300 points, pulling all major stock indices out of the red. The S&P 500 and the tech-heavy Nasdaq Composite followed suit, each rising about 1% and 1.3%, respectively.
The September jobs report was a curveball for those expecting a cooling labor market. The U.S. economy added a whopping 336,000 jobs, almost double the forecast. This robust data could arm the Fed with enough ammo to maintain a more hawkish stance for an extended period. The unemployment rate held steady at 3.8%, a figure not seen since February 2022.
Ellen Zentner, Morgan Stanley’s chief U.S. economist, didn’t mince words: “Today’s report was unequivocally strong. Too strong for policymakers to relax their tightening bias. Inflation has been decelerating faster than Fed forecasts, but continued strength in job gains will fuel doubts that the pace of deceleration in inflation will be sustained.”
Wage growth, a key metric for worker leverage, came in below expectations, rising only 0.2% month-over-month and 4.2% year-over-year. The labor force participation rate remained unchanged at 62.8%, its highest since February 2020, while average weekly hours stayed flat at 34.4.
The jobs added in September spanned various sectors, with leisure and hospitality leading the pack by adding 96,000 jobs. Food services and drinking places chipped in with 61,000 jobs, reaching pre-pandemic levels. Government and healthcare sectors weren’t far behind, adding 73,000 and 41,000 jobs, respectively.
The labor market remains a focal point for the Federal Reserve, especially as it gears up for its next policy meeting on November 1. Fed Chair Jerome Powell has previously indicated that “some softening” in the labor market is needed to bring inflation down to the Fed’s 2% target. “Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response,” Powell cautioned.
Market odds for a November rate hike jumped today, with the likelihood rising from 18% a week ago to 29% post-report. This shift comes as stocks have been under pressure due to rising yields and the Fed’s “higher for longer” interest rate stance. Today’s jobs data exacerbated those losses, causing yields on 10-year and 30-year Treasuries to pop.
Fed officials are also keeping a close eye on the bond markets. Mary Daly, a Fed official, noted that if long-term bond yields stabilize around current levels, there might be no need for another rate hike. However, the yield rally persisted today, with 10-year U.S. Treasury yields climbing past 4.8%.
Analysts believe that without a clear catalyst, the bond sell-off is likely to continue. A stock market washout or economic softening would be needed to trigger a yield retreat.
On the commodities front, concerns about growth prospects have been a drag on oil prices, which are on track for their most significant weekly loss since March. WTI crude oil futures hovered around $83 a barrel today, while Brent crude futures clung to the key $84 level.
Today’s jobs report is the final significant payroll data before the Fed’s next policy meeting, adding another layer of complexity to an already intricate market landscape.
