Friday’s Non-Farm Payroll update initially saw stock indices swoon and bond yields jump. This was in reaction to the news of a 336,000 increase in September’s Non-Farm Payrolls, way above the 170,000 expected. In addition, the prior reading was revised up by 40,000. Overall, this was enough to convince investors of continued robustness in the US labour market, thereby ensuring the Federal Reserve would continue to hike rates to bring inflation down further. Initially, the small decline in Average Hourly Earnings was ignored, as was the Unemployment Rate was remained steady at +3.8%, close to historic lows. But once the stock exchanges opened, there was a sudden turnaround which saw all the major US stock indices rally sharply, giving us a positive close for both the day, and the week.
As you can see from the daily chart of the S&P, the rally brought the index back above the lower support line of the upwardly-sloping trend channel that has been building since the lows of October last year. It’s also clear that the MACD has turned upwards, suggesting that the rally may have legs. However, it’s worth noting that we’ve come a long way in a short time, and the bears aren’t beaten yet. They still have strong arguments to take this market lower.
From a fundamental viewpoint, the strong Non-Farm Payroll data would seem to strengthen the Fed’s hand when it comes to raising rates further. But it’s worth noting that the gains in payroll were mostly low-paying jobs in government and hospitality, and, more worryingly, a lot of second full-time jobs for many workers. These are the ones unable to get by on the money that a single job pays – very concerning.
On the positive side, bond yields have pulled back from last week’s 16-year highs (on the 10-year Treasury) and more than one FOMC member has suggested that the rally in yields could negate the need for further Fed tightening. But for now, it may be worth standing on the sidelines until some of the recent froth comes off the market and it gets a bit easier to read.
As you can see from the daily chart of the S&P, the rally brought the index back above the lower support line of the upwardly-sloping trend channel that has been building since the lows of October last year. It’s also clear that the MACD has turned upwards, suggesting that the rally may have legs. However, it’s worth noting that we’ve come a long way in a short time, and the bears aren’t beaten yet. They still have strong arguments to take this market lower.
From a fundamental viewpoint, the strong Non-Farm Payroll data would seem to strengthen the Fed’s hand when it comes to raising rates further. But it’s worth noting that the gains in payroll were mostly low-paying jobs in government and hospitality, and, more worryingly, a lot of second full-time jobs for many workers. These are the ones unable to get by on the money that a single job pays – very concerning.
On the positive side, bond yields have pulled back from last week’s 16-year highs (on the 10-year Treasury) and more than one FOMC member has suggested that the rally in yields could negate the need for further Fed tightening. But for now, it may be worth standing on the sidelines until some of the recent froth comes off the market and it gets a bit easier to read.