Employment Data Saves Markets After Tense Week

Following a period of record highs, equity markets took a breather this week, eking out minimal gains as geopolitical tensions, mixed economic data and a short-lived industrial dispute dictated trading activity.

Monday saw the close of the third quarter. While September is typically the worst month of the year for stocks¹, this year it broke with past trends². All three major averages posted monthly gains, and it was the first positive September for the S&P 500 since 2019. All three major indices also ended the third quarter in positive territory with the S&P 500 up 5.89%, the Dow higher by 8.72% and the NASDAQ Composite advancing 2.76%.³

October started with confirmation from the Institute of Supply Management that the manufacturing sector continued to struggle. The sector, which accounts for 14% of US GDP, saw activity contract in September for the sixth consecutive month and for the 22nd time in the last 23 months. The Manufacturing PMI of 47.2 percent in September matched the figure recorded in August. The outlook also remains challenged, with the New Orders Index remaining in contraction territory, registering 46.1 percent.⁴

Stocks retreated on Tuesday following escalating geopolitical tensions in the Middle East as Iran launched a missile attack on Israel.⁵  Investors are preparing for some uncertainty as Israel starts a ground operation into Lebanon and considers direct retaliatory action against Iran.⁶ The growing fears have also driven oil prices higher. US crude futures rose more than 1.5%, bringing its week-to-date advance to 4.6%.

Investors faced further uncertainty last week as the Members of the International Longshoremen’s Association, the union representing 50,000 members covered under the contract with the United States Maritime Alliance, planned a work stoppage over a pay dispute. The stoppage had threatened to disrupt supply chains, causing shortages of some consumer goods and supplies needed to keep US factories running. It also temporarily cut off the flow of many American exports, putting overseas sales at risk for some US businesses. However, the two sides reached an agreement on the key dispute on Friday, resulting in only limited damage to America’s economy.⁷

By Friday, markets were on track for a losing week. However, stocks rallied after data showed nonfarm payrolls grew by 254,000 jobs in September, far outpacing the gain of 150,000 expected by economists polled by Dow Jones. The unemployment rate ticked down to 4.1% despite expectations for it to hold steady at 4.2%.⁸

The strength of the jobs report is likely to provide the Federal Reserve some relief as it contemplates further reductions in the federal funds rate. Fed Chair Powell said earlier in the week that the central bank is “not on any preset course” when it comes to the next steps for rate policy. He said to expect two more cuts this year – that is, a quarter percentage point each – if the economy performs as anticipated.⁹ According to the CME FedWatch, markets are currently ascribing a 95% chance of a 25bps cut in the fed funds rate the Fed’s November meeting.

Sources:

1. https://www.cnbc.com/2024/09/03/septembers-poor-history-is-hard-to-ignore-but-market-has-many-things-on-its-side-including-the-fed.html
2. https://www.cnbc.com/2024/09/24/market-headed-for-first-winning-september-in-5-years.html
3. Morningstar Direct
4. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/september
5. https://www.cnbc.com/2024/10/01/iran-readying-imminent-ballistic-missile-attack-against-israel-us-official-tells-nbc-news.html
6. https://www.cnbc.com/2024/10/01/israeli-forces-launch-ground-offensive-in-lebanon-as-markets-eye-escalation-.html
7. https://edition.cnn.com/2024/10/04/business/port-strike-ends-whats-next/index.html
8. https://www.cnbc.com/2024/10/03/stock-market-today-live-updates.html
9. https://www.cnbc.com/2024/09/30/powell-indicates-further-rate-cuts-but-insists-the-fed-is-not-on-any-preset-course.html