Market Pulse

In focus

Equity markets were volatile last week, with three separate days seeing the S&P 500 close at least 2.5% above or below the previous day's close. This was the first such occurrence since March 2020. Prior to the pandemic-related market crash, no such week had occurred since 2011. The Volatility Index (VIX) remained elevated and closed above 30 for the second consecutive week.

Stocks rallied to start the week, with the S&P 500 gaining 5.6% through Tuesday. Aiding the rally was improving market sentiment after downside surprises in economic reports, including ISM Manufacturing data. Potentially slowing inflation gave markets hope that the Federal Reserve (Fed) may soon pivot to a more dovish stance. However, markets faltered with renewed inflation concerns, beginning with the OPEC+ announcement of a two million barrel-per-day cut in production on Wednesday. Oil prices increased, with WTI Crude closing the week at $92.64.

Highly anticipated economic data indicated that the labor market remains strong, stoking fears of persistent inflation. This good news for the labor market was bad news for stocks, as equities tumbled on Friday. Investors viewed a falling unemployment rate and a higher-than-expected payroll figure as signs that the Fed will likely implement another supersized rate hike at the November FOMC meeting. A strong labor market could mean the Fed continues to be more aggressive.

On the other hand, hourly earnings came in below expectations and increased at the slowest pace of 2022. Fed officials will likely view this favorably and will hope to see similar signs of a cooling labor market in future economic releases. In response to the data, Treasury yields jumped at both the short and long ends of the yield curve, and futures markets are now pricing in over a 90% chance of a 75 basis point (0.75%) hike at the November FOMC meeting.

A look back

• Global equities were buoyed by early-week gains and finished the week up 1.8%. Emerging markets outperformed, returning 2.5%, while the S&P 500 gained 1.6% to snap a three-week decline.
• 10-year U.S. Treasury yields rose to 3.88%, while the 2-/10-year inversion held steady at -0.41%.
• The U.S. labor market continued to show strength with the U.S. economy adding 263,000 jobs in September, which was roughly in-line with consensus estimates. The unemployment rate fell to 3.5% from 3.7%, matching its low for this cycle. 

A look ahead

• Investors will look towards inflation data this week. Producer and consumer prices will provide insight into the Fed’s fight against inflation and are key data points ahead of the November FOMC meeting.
• Earnings season kicks off this week and will shed light on how corporate profitability is holding up amid monetary tightening and slowing growth.
• Economic releases: NFIB Small Business Index, September FOMC meeting minutes, Producer Price Index, Consumer Price Index, Business Inventories, Retail Sales, University of Michigan Sentiment.

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