Market Note – October 8, 2024

By Hightower Great Lakes on October 8, 2024

So, Soft Landing It Is

Friday’s non-farm payroll report justified our view that the U.S. economy is in a soft landing. September’s jobs report showed payrolls rose 254K in the month, well above estimates of 142.5K. The highest headline reading since March also brought higher revisions for July and August to the tune of 72K jobs.

Average hourly earnings rose 0.4% m/m, above consensus, and the unemployment rate ticked down 0.1 percentage points to 4.1%. Annualized average hourly earnings rose to 4%; this week’s inflation report will provide data on whether consumer spending and prices are picking back up across the economy.

Friday’s data proved just how strong the U.S. economy is. We have been in this camp for a while: inflation is at the Fed’s 2% goal, economic growth is strong, and the consumer remains healthy.

The jobs report moved Treasury yields higher across the curve as markets now think there may be fewer cuts and higher long-term interest rates. The two-year Treasury yield rose 20 basis points (bps) and the ten-year Treasury yield rose 12 bps.

A 50 bp cut at the Fed’s November FOMC meeting was fully priced out; there was a 53% chance of a 50 bps just a week ago which is now 0%. There are still six weeks until the Fed’s November FOMC meeting, with plenty of data points until then.

But the Fed has informed markets that they have turned their attention to the labor market, and a beat of this magnitude may inform the committee that it does not need to cut rates as fast as they previously thought.

Chart 1: A 25 bp Cut in September Jumps to a 99% Probability from 46% One Week Ago[1]

Many Crosscurrents, But Markets Chug Along

Tensions in the Middle East increased further last week when Iran conducted airstrikes towards Israel. Israeli Prime Minister, Benjamin Netanyahu, promised that Iran would pay for its attack, but Iran said any retaliation would be met with “vast destruction.”[2]

Iran’s supreme leader said Friday that Iran will attack Israel again if necessary.[3]

Crude prices rose over 7% last week and volatility (VIX) also rose, up 11%. The S&P 500 was mostly unchanged, down less than 30 bps. The U.S. presidential election is five weeks away, along with a devastating hurricane in the southeast, tensions in the Middle East, and a still-ongoing Russia/Ukraine war.

Global central banks are amid mass easing cycles in hopes that their respective economies steer away from a recession, and the three-day U.S. port strike recently came to an agreement that will last until January 2025.[4]

That said, the S&P 500 had its strongest year-to-date gain through three quarters since 1997, rising 20.8%. The stock market is a leading indication and has shown much resiliency this year.

The strength of the U.S. economy is a big reason for this, with strong corporate profits, lower inflation, a stable labor market, and healthy consumers. We expect U.S. GDP growth of 2-2.5% this year, with earnings to grow 8-10%.

Chart 2: The S&P 500 Just Had its Best Gain Through Three Quarters in 27 Years[5]

Fixed Income

Even with the backdrop of heightened geopolitical tensions in the Middle East and concerns over the economic impact of the dockworkers strike, U.S. credit spreads continued to tighten. U.S. Investment Grade spreads tightened 5 bps over the week and have tightened 15 bps over the last month to +123. U.S.

High Yield spreads tightened 23 bps over the week to +335, the tightest since the end of 2021. U.S. credit ratings remained strong last week as the main rating agencies issued 74 upgrades compared to 30 downgrades.

Investment grade issuers led upgrades with 50. On a sector level, Financials had the most upgrades, while Materials had the most downgrades

Municipal bond yields were a mixed bag with yield moves compared to Corporate & U.S. Treasury Bonds. The ultra-short end rose 30-39 bps over the week, while yields in the belly and long end of the curve finished slightly higher by 1-4 bps.

The Week Ahead

Earnings – Tuesday: PEP; Thursday: DAL, DPZ; Friday: BK, FAST, JPM, WFC.

Economics – Tuesday: NFIB Small Business Index; Wednesday: FOMC Minutes, Wholesale Inventories; Thursday: CPI, Core CPI, Hourly Earnings, Average Workweek, Initial Claims; Friday: PPI, Core PPI, Michigan Sentiment.

Return for Selected Indices^[6]

Click here to read last week’s Market Note (10/1).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

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All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: CME Group. As of October 4, 2024.

[2] Source: Reuters. As of October 1, 2024.

[3] Source: CNN. As of October 4, 2024.

[4] Source: Reuters. As of October 4, 2024.

[5] Source: Bespoke Investment Group. As of September 30, 2024.

[6] Source: Bloomberg. As of October 7, 2024.