S&P 500: 0.45% DOW: 0.79% NASDAQ: -0.18% 10-YR: 4.63%
What Happened?
In one of the more volatile weeks of the year, equities finished slightly higher while bond yields fell amidst geopolitical worry and growth fears. However, the grand finale Friday saw stocks stumbling and bonds making gains as Israel geared up for a possible ground invasion in Gaza, sending traders into a bit of a frenzy with gold and oil prices higher.
This week also kicked off the earnings season with major banks reporting. By and large, the reports were on the positive side. Jamie Dimon, CEO at JP Morgan, caught everyone's attention by pointing out that even though consumers and businesses were doing well, households were drawing down cash balances. Additionally, he added that high debt levels out of Washington meant that interest rates may climb further from here. Rates took a breather this week, stepping back from their 16-year highs with the 10-year yield dropping about 15 basis points.
Beneath the surface, Energy came out on top after gaining over 2% yesterday. Interest rate names like Utilities and Real Estate were close behind. Lagging the most were Materials and Consumer Discretionary.
The consumer-price index rose at a 0.4% pace in September from the prior month and 3.7% from a year earlier
The monthly gain represents a cooling from August’s 0.6% increase
Core prices, excluding food and energy, increased 0.3% on the month and 4.1% from last year
Housing and energy, specifically gasoline, prices rose the most while used car and restaurant prices fell
The key takeaway - The Federal Reserve has made notable progress in addressing inflation, although it's too soon to claim victory. While the overall trend of price moderation is a positive sign, September revealed reaching the 2% target may be a bumpy road. Energy prices, initially affected by OPEC+ supply restrictions, now face additional upside risks due to the ongoing conflict in the Middle East. Services inflation, closely linked to labor costs, needs to display sustained deceleration to maintain the Fed's confidence. The recent jobs report, which showed ongoing strength in the labor market, did provide signs of slowing wage growth. The economy continues to thrive despite the Fed policy tightening thus far. As most officials believe they are now in restrictive territory, deciding if there is more tightening to be done and timing when to ease off the brakes become the primary questions for markets.
Federal Reserve officials at their September meeting differed on whether any additional interest rate increases would be needed, though the balance indicated that one more hike would be likely
There was unanimity on one point – that rates would need to stay elevated until policymakers are convinced inflation is heading back to 2%
All members of the FOMC agreed they could “proceed carefully” on future decisions, which would be based on incoming data
The key takeaway - Unpacking the FOMC Meeting Minutes, it's evident that the Federal Reserve remains cautious regarding the potential for reaccelrating inflation. Despite expectations of economic decline throughout 2023, the economy has surprisingly maintained its resilience, creating a risk of persistent underlying inflationary pressures. The committee strongly signaled the likelihood of raising rates at the November meeting. However, financial conditions have tightened significantly due to a sharp increase in market rates, somewhat doing the Fed's job for it. Consequently, a number of committee members have since expressed reservations about the necessity of a rate hike in November. The market certainly agrees, with the probability of a rate increase dropping from over 50% in September to a mere 8% according to investors.
Following McCarthy's ousting, Scalise defeated Jim Jordan to become the GOP candidate
Later Thursday night, Scalise announced he was dropping out of the race after House Republicans failed to coalesce behind him
Last night, the GOP nominated Jim Jordan
After nominating him, the conference took a second vote to gauge support now that Jordan was the nominee. But he fell far short with 152 votes of the 217 needed on the House floor
Lawmakers then broke for the weekend with few signs of what would come next
The key takeaway - While awaiting the selection of a new Speaker of the House, Congress is practically paralyzed in the midst of pressing matters demanding immediate attention. The rapidly evolving Israel-Hamas conflict has assumed a central role, yet lawmakers cannot pass through security assistance measures, injecting uncertainty into the US response to the outbreak. If the speaker selection process drags on, the recent close call with a government shutdown could resurface as the upcoming deadline for spending legislation approaches on November 16th. In the event of a government shutdown, critical economic reports' collection and distribution would be disrupted, likely burdening a Federal Reserve and market heavily reliant on data.
From The Waterloo Watercooler
Birkenstock opened trading this week at $41/share—down from the $46/share it set for the IPO—and dropped by another 12.6% by the time the market closed
Exxon Mobil, one of the world’s largest oil companies, announced Wednesday that it will acquire the Texas-based shale company, Pioneer Natural Resources
The UAW unexpectedly added nearly 9,000 workers at Ford’s largest truck plant to its strike in a major escalation against Detroit’s Big Three
NASA scientists revealed that they’ve found a “treasure chest” of life ingredients carbon, water, and other materials in a sample of a 4.5 billion-year-old asteroid
