11/1/24: Market Volatility Rises Amid Weak US Employment Data

Fixed income markets experienced heightened volatility this week as participants absorbed key economic data releases. This morning’s US employment report showed that the US economy only added 12,000 jobs in October, far below the consensus estimate of 100,000. Additionally, downward revisions totaled 112,000 for the prior two months, bringing the September nonfarm payrolls to +223,000. The devastating impacts from Hurricanes Helene and Milton likely drove temporary jobs lower, while the Boeing strike deducted about 44,000 jobs primarily from the manufacturing sector. Health care and government employment both posted gains last month. The unemployment rate held steady at 4.1%, while the underemployment remained at 7.7% and wage growth was unchanged at 4.0% year-over-year for October. Markets mostly shrugged off the weak report due to the temporary nature of the disruptions, with US Treasury yields and equities trading higher today. Notably, the ICE BofA MOVE index, a measure of US bond market volatility, rose to 135 as of yesterday, well above its long run average of about 90.

Yesterday’s closely watched Personal Consumption Expenditures (PCE) inflation report for September showed an increase of 2.1% year-over-year and 0.2% month-over-month. Shelter, health care, utilities, prescription drugs, food, and autos all contributed to the increase, which was partially offset by lower gasoline prices. The Fed’s preferred metric for measuring inflation, Core PCE, increased 2.7% year-over-year and 0.3% month-over-month for September, running higher than the headline number because it excludes the volatile food and energy sectors from its calculation. Personal spending surprised to the upside, rising 0.5% from a surge in spending on goods, while personal income rose 0.3% on wage gains. The savings rate dipped to 4.6% to compensate for the additional spending.

Meanwhile, the Conference Board’s US consumer confidence index jumped to 108.7 for October versus 99.2 for the previous month, boosted by improvements in both consumers’ outlook and their view of present economic conditions. Although consumer confidence is above the longer run average of about 95, it remains well below pre-pandemic levels. Earlier in the week, the S&P CoreLogic Case Shiller Home Price Index decelerated to +5.20% year-over-year for August, with New York (+8.2%), Las Vegas (+7.3%) and Chicago (+7.2%) seeing the highest gains.

US Treasury yields moved higher this week with the 2-year US Treasury trading at 4.20%, up about 9 basis points, the 5-year at 4.22%, an increase of about 15 basis points, and the 10-year at 4.38%, a gain of 13 basis points on the week as of this writing. Investors are anticipating a 0.25% rate cut at the Federal Open Market Committee (FOMC) meeting on November 6-7, especially in light of today’s employment report and moderating inflation.

Next week: Factory Orders, ISM Services Index, S&P Global US Services PMI, FOMC Meeting, University of Michigan Sentiment Index

© 2024 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. All rights reserved. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.