Weekly Market Update: October 16, 2023
The nation created an estimated 336,000 jobs in September. That figure was nearly double the consensus expectation of 170,000 and was accompanied by sharp upward revisions to the July and August tallies. The unemployment rate held steady at 3.8%.
The strong September labor market data pushed Treasury market yields higher, but they have since eased some on escalating geopolitical worries (more below). The resilient job market puts little pressure on the Federal Reserve to loosen its restrictive monetary policies.The narrative remains in place that the central bank will keep interest rates higher for a longer period to effectively fight inflation. The average hourly wage increased at a more-modest pace in September, which was an encouraging sign for the Fed.
The Fed’s goal of orchestrating a “soft landing” for the U.S. economy is plausible, but it will likely require the consumer to keep spending. The still-tight labor market may provide near-term support, but there is no denying that pressure on the consumer, in the form of shrinking savings accounts and ballooning credit card balances, is mounting. It should be noted that housing affordability continues to erode, as home prices remain high and the rate on the average Freddie Mac 30-year fixed rate mortgage hovers around 7.50%.
Meantime, the horrific events in the Middle East are being closely monitored by Wall Street. From an economic standpoint, the massive violence in the region could threaten global supply chains, particularly in the energy market. The price of oil, which recently pulled back, reversed course as the fighting between Israel and Hamas, an Islamic militant group designated a terrorist organization by the U.S. and European Union, intensified.
Conclusion: In a higher interest-rate environment and with escalating geopolitical discord, we think a portfolio consisting of high-quality stocks and cash is appropriate at this time.