Hope you are all doing well. Stocks started the week and a new quarter on a sharply positive note with rallies on Monday and Tuesday. The market rally on the first 2 days of the quarter sent the S&P 500 to its biggest two-day surge since March 2020, as the index added a total 5.7%. It didn’t last as it turned negative the next three days. Nevertheless, the major U.S. stock indexes posted weekly gains of around 1% to 2%, marking just the second positive week out of the past eight. Kanye West or Ye as he is now legally known was in the news week after having his Instagram account suspended by Meta. I have broken down this week’s market update using lyrics from some of his songs.
Conflicting jobs data was driving the market berserk as investors grappled with why more people aren’t looking for work. Tuesday stocks surged when monthly data showed a decline in job openings., The hope was that the Fed might be less aggressive if the labor market showed signs of cooling. The number of job openings decreased 10.0% in August, the most since April 2020, and the fourth decline in the past five months. The market move higher was premature. On Friday stocks fell after a solid monthly jobs report took away the hope of the Fed moderating rate hikes. The expectation is now that the Fed will raise rates by 3/4th of percent for the fourth meeting in a row. Although September’s jobs gain total of 263,000 was down from the prior month’s 315,000 figure, it was modestly above economists’ expectations. The unemployment rate also unexpectedly slipped to 3.5% from 3.7%. On the surface low unemployment seems like a good thing but labor-market strength makes it less likely that the Fed pivots from its aggressive interest rate hikes. Markets are now expecting rates to peak at 4.6% sometime next year. What looking at both Tuesday’s and Friday’s numbers together tells you is that companies don’t want to cut jobs. They are choosing instead to slow the pace of hiring which is why job openings are decreasing while the unemployment rate continues moving lower.
The OPEC+ alliance talked Wednesday with much emphasis. Announcing, it will cut oil production by 2 million barrels a day, a move that’s likely to send gas prices higher again after a year of tumult at the pump. The move represents the largest cut in production since the start of the pandemic. Maybe sensitive is the wrong word, but the White House was not pleased. They called production cut “shortsighted” with global energy prices are already lifted higher by Russia’s invasion of Ukraine. After ending the previous week just below $80 per barrel, U.S. crude oil was trading near $93 on Friday. The strategy to combat rising prices has been the largest drawdown of the Strategic Petroleum Reserve (SPR) in U.S. history. It is not a long-term solution. The SPR is already at a 33 % lower level than was it a year ago and we are at our lowest level of oil reserves since 1984. Expect prices at the pump to climb again.
The U.K. did an about face and reversed their tax plan which would have reduced taxes on the wealthy. The new U.K. government, led by Prime Minister Liz Truss, abruptly dropped the plan which would have implemented tax cuts and spending increases funded by borrowing. The initial announcement of the tax cut plan on September 23 triggered a sharp decline in the value of the British pound. As of Friday, relative to the U.S. dollar, the pound had recovered most of the ground lost in that initial drop.
The market will continue to be volatile. If you’d like to speak about your investments or your plan, my calendar link is below and you can schedule a phone or zoom appointment at any time.
