Weekly Market Update: November 13, 2023
The nation created an estimated 150,000 jobs in October. That figure fell short of the consensus expectation of 170,000 and was accompanied by downward revisions to the tallies for the previous two months. The unemployment rate also inched up, to 3.9%, last month, suggesting some weakening in the labor market. Of particular importance to the Federal Reserve in its attempt to tame inflation was a moderation in the average hourly wage growth over the last 12 months to 4.1%. This marked the smallest increase in more than two years.
The Federal Reserve kept the federal funds rate in the range of 5.25% to 5.50% at its November monetary policy meeting. The decision was not unexpected, as the central bank believes it has not yet seen the full effects of the most restrictive monetary policy course in four decades. Fed Chairman Jerome Powell said there still is a bias among policymakers to hike interest rates, but did not sound excited about the possibility.
Third-quarter earnings season is nearing the finish line. In total, more than 80% of the reporting S&P 500 companies have surpassed earnings forecasts, with average profit growth hovering around 4%. This would mark the first period of year-over-year earnings growth since the third quarter of 2022. Fourth-quarter company prognostications have been underwhelming, but not enough to raise red flags about the overall health of Corporate America.
These recent events have created a “Goldilocks” scenario for Wall Street. In general, the Federal Reserve is starting to see some meaningful progress in its attempt to slow growth and the pace of price increases, but not at the cost of pushing the economy off a cliff. That said, the month of October brought declines in manufacturing and housing market activity, which may be why Chairman Powell noted the central bank will remain data driven and proceed “carefully” with regard to tightening the monetary reins further.
Conclusion: The market now seems to think that the central bank is done raising interest rates and long-term Treasury market yields eased from their recent peaks. This prompted a notable rally in an equity market that was in the midst of a multi-month decline that commenced in late July.