Market Updates
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Categories:
Key areas of focus
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This week delivers another mix of delayed and fresh data as markets continue to sort through the backlog. Investors will be watching September Factory Orders, Consumer Inflation Expectations for November, Q3 Nonfarm Productivity, the September JOLTS report, the Fed meeting, the September Trade Balance, and weekly jobless claims.
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The Fed meets Tuesday and Wednesday, with markets assigning roughly an 87% chance of a rate cut as of Friday. Beyond the decision itself, investors will be focused on any signals around future policy moves. With December now close to fully pricing a 25bp cut, attention will likely shift toward expectations for the meetings that follow. The press conference may carry added weight given emerging divisions within the committee.
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The labor market remains a key area of uncertainty. The government’s November employment report won’t be released until December 16 because of the shutdown, leaving private data to fill the gap. ADP reported private-sector job losses of 32,000 in November, a reversal from the 47,000 gain in October. The report reinforced concerns that the labor market may be softening.
Week in review
Last week’s macroeconomic data was mixed across the board. Business sentiment was uneven, with the ISM Services index ticking higher while manufacturing declined again. Labor data was equally conflicted with jobless claims falling sharply (a seemingly positive sign) but ADP estimated that private-sector jobs declined in November. Markets opened the week slightly lower as investors digested a weaker ISM Manufacturing reading, which slipped to 48.2 with declines in new orders and employment but a modest rise in production. With no major news on Tuesday, markets drifted modestly higher. On Wednesday, stocks climbed again as the ISM Services Index unexpectedly improved. However, ADP showed a 32k decline in private payrolls, and industrial production was only marginally positive. Thursday was mostly flat, even with jobless claims falling by more than expected. By Friday, sentiment improved with the University of Michigan survey showing a slightly improved reading, consumer spending holding steady, and September core PCE inflation coming in-line with expectations helping markets finish the week modestly higher.
Spotlight
Even with futures markets pricing in an 87% chance of a Fed rate cut this week, the 10-year Treasury yield climbed from 4.02% on 11/28 to 4.14% by Friday. It’s a good reminder that lower short-term rates don’t automatically pull long-term rates down. Long-term yields are driven less by what the Fed does this week and more by what investors think about future growth and inflation. While the Fed has influence, it’s only one piece of a much bigger puzzle that includes everything from global demand to geopolitical tensions. When yields rise, it can be a signal that investors see stronger growth ahead or that they’re concerned about future inflation. The 10-year is ultimately the rate that matters the most for long-term equity valuations. When analysts talk about the “risk-free rate” in models or valuations, they often mean the 10-year. And because the 10-year benchmark also affects so many borrowing costs from 30-year mortgages to corporate debt, student loans, and business financing, an uptick in yields tends to make credit more expensive for both consumers and companies.
Markets
Sectors
Style & Market Cap
Sources
- CME FedWatch Tool
CME Group, FedWatch, retrieved from CME Group; https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
- ISM Manufacturing
Institute for Supply Management, Institute for Supply Management (ISM) Purchasing Managers Index (PMI) Manufacturing Report, retrieved from ISM, https://www.ismworld.org/supply-management-news-and-reports/reports/ism-pmi-reports/pmi/november/
- ISM Services
Institute for Supply Management, Institute for Supply Management (ISM) Purchasing Managers Index (PMI) Services Report, retrieved from ISM, https://www.ismworld.org/supply-management-news-and-reports/reports/ism-pmi-reports/services/november/
- Jobless Claims
U.S. Department of Labor, Unemployment Insurance Weekly Claims, retrieved from U.S. Department of Labor; https://www.dol.gov/ui/data.pdf
- ADP Report
ADP Research, ADP National Employment Report, retrieved from ADP, https://adpemploymentreport.com/
- Industrial Production
Board of Governors of the Federal Reserve System, Industrial Production and Capacity Utilization – G.17, retrieved from The Federal Reserve, https://www.federalreserve.gov/releases/g17/current/
- Consumer Sentiment
Surveys of Consumers, University of Michigan Consumer Sentiment Index Summary, retrieved from University of Michigan, https://www.sca.isr.umich.edu/
- Personal Consumption Expenditures Price Index (PCE)
Bureau of Economic Analysis, Personal Consumption Expenditures Price Index, retrieved from BEA, https://www.bea.gov/data/personal-consumption-expenditures-price-index
Market Data
Morningstar Direct using Morningstar Indices
Authors:
Anthony Silva
CFA®
Senior Director of Strategy Management
World Investment Advisors, LLC