This morning’s non-farm payroll report might have noted the weakest gain since April 2021 but there’s not enough damage in the labor market yet to cause the Fed to “pause”. +263k new jobs was in line with market expectations. Another +75bps hike in Fed funds rates in early November is now a mortal lock bet. December will be the moment of truth – there’s lots of demand destruction going on in the economy and two months from now the Fed will likely be thinking about becoming less aggressive. As we stand now, “good news” is “bad news”…and there’s not enough bad in today’s labor report to cause the Fed to change course.
Market inflation expectations are coming down and coming down fast. Six months ago, five year forward inflation breakevens were close to 4%, today they have come down to 2.35%. The Fed must like this path and will likely concede that inflation is back under control when it hits 2%. That might be a few months from now.
Gasoline at the pump lower, housing starts slower, inflation coming down. The last thing that needs to crack is labor. This week noted a material decline in job openings, an increase in initial unemployment claims, and a softening in average hourly earnings (albeit hours worked are up). Labor weakness is underway – we just need one or two bad labor reports to get the Fed to change direction.
Richard Barrett
Chief Investment Officer
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.
Comments are closed.