Market Update
Stocks Rise On Slowing Economy
Stocks jumped higher right from the start of the week, shaking off the prior week’s sell-off. The combination on Wednesday of the Fed’s decision to keep rates unchanged, which accompanied dovish comments from Fed Chair Powell, and a reassuring Treasury announcement on future bond sales, sparked a third straight day of gains. Slight employment gains and weak manufacturing data provided an additional impetus.
The rally continued on Thursday following a sharp drop in bond yields that was driven, in part, by substantial productivity gains and decelerating wage growth. When Friday’s monthly employment report was lighter than forecast, yields pulled back further, and stocks added to their week’s gains.
Signs Of Labor Cooling
Last week’s employment data showed potential for a cooling labor market after many months of confounding economists’ expectations. The first sign was a lower-than-expected growth in new private sector jobs in October, as reported by Automated Data Processing (ADP), which showed a gain of 113,000 new jobs versus a forecast of 130,000, while job openings were little changed.1
Initial and continuing jobless claims also rose, exceeding consensus estimates. On Friday, the government’s monthly employment report further confirmed a potentially cooling employment picture, showing an October slowdown in hiring (150,000 new jobs versus September’s revised gain of 297,000) and an uptick in the unemployment rate to 3.9%.2
Things are Better Than They Feel
Consumer sentiment, while up slightly from 2022, is still lower than in most of the past ten years and is lower than 90% of all historical measurements.4 The US consumer is quite pessimistic, especially compared to historical norms.
Looking at other economic data, we're seeing a more optimistic picture emerge. The US Misery Index, an economic indicator developed by the Bureau of Labor Statistics, begins to paint a rosier picture with a current level lower (lower is better) than 75% of historical measurements.5 Things (unemployment and inflation) are actually better than they feel.
US Misery Index
While there are many factors behind the scenes causing this disparity between economic data and sentiment, we believe there are two culprits that can take most of the blame. Culprit #1 is our current political environment; however, we want to stress that disliking your government is not a prudent investment thesis. Culprit #2 is the 24/7 news cycle and algorithms. Statistics tell us that negative news sells, and current technology shows what people click on, which allows more negative news to perpetuate than in the past. And like with culprit #1, forming your investment strategy based on the news cycle is not a prudent investment strategy.
In our last newsletter, we laid out several concerns in the current economic environment; however, we continue to see green shoots emerge that indicate a bad ending to this economic story is not guaranteed.
Will Middle East Tensions Push Rates Higher?
The Fed’s ongoing pledge of “higher interest rates for longer” has rattled financial markets and raised the cost of everything from mortgages to credit cards.
Now adding to tensions are the recent events in the occupied territories of Israel and Palestine which, in addition to a grievous loss of life, immediately pushed oil prices higher.
Higher oil prices could translate to inflation, which may give the Fed another reason to keep rates higher for longer.
But are rates high enough? In the accompanying chart, you can see that the current rates on the 10-year government bond are higher than most of Europe, where inflation is higher than the U.S.3
Remember, the Fed is trying to “thread a needle” by raising interest rates to slow the economy–and reduce inflation–without causing a recession.
So, while you may be starting to experience some relief from inflation at the grocery store, if you’re shopping for a new car, expect to find the cost of financing is higher. Those higher rates may prompt some to hit "pause" on that new car, which is exactly what the Fed wants.
We can't be certain of what comes next–or to what extent the heartbreaking geopolitical events will influence markets. But we do know that the Fed had a few more things to consider at its most recent meeting on November 1, 2023.
Be the Master of Your Happiness
Simple, profound truths are the realm of this Buddhist nun. Her message? The gift of happiness truly lies within our own hearts and minds.
Gen Kelsang Nyema, exuding a peacefulness that immediately connects with the audience, starts by asking three questions: Are you having a good day? Why? Tomorrow, would you rather have a good day or a bad day?
She teaches that we cannot put our happiness at the whim of other people and of circumstances. If we want to be happy, we have to "stop outsourcing our happiness to other people" and cultivate a source of inner peace.
What happens next is quite astounding. The whole crowd of 350+ people proceeds to meditate with Nyema. There's a little squirming at first, but as she leads the audience through a calm citation of how to rest the mind, audience members feel a collective relaxation flow into the room and through the people. Fascinating! Refreshing.
Intrigued? Click below to watch Nyema's full TED Talk!