This morning, the September jobs report (non-farm payrolls) came in much hotter than expected with the economy adding 336k jobs, well above consensus estimates of 170k. In addition, the revision for August employment was just as impressive with the previously released figure 187k new jobs being revised upward to 227k. Job additions for September were seen across the board in almost all sectors. Private Service payrolls saw the biggest gains with job additions of 234k in September, up from 130k in August.
However, investors reacted to this arguably good news by pushing market futures lower in anticipation of further “higher for longer” interest rate environment sentiment, given the strength of the jobs market. In our opinion, the strong jobs numbers will keep additional Federal Reserve interest rate increases on the table over the next couple of months. On the fixed income side, Treasury yields have spiked this morning with the 2-year note yield rising 9 basis points to 5.11% and the 10-year note yield rising 13 basis points to 4.85% at the time of this writing.
In terms of future interest rate increases, the Treasury market is now pricing in a 50% chance of an additional 25 basis point rate hike at either the Federal Reserve’s November or December FOMC meeting. Despite the strong economic data, the market is also still pricing in rate cuts beginning in July of 2024, with expectations of 50-75 basis points of rate cuts by the end of 2024. The expectations for future interest will remain fluid. In the meantime, good economic news is seen as bad news for interest rates, which eventually could lead to a slowdown in the economy.
Despite the volatile interest rate environment, it is important to maintain a disciplined investment approach. Markets tend to lead ahead of both recessions and recoveries, with varying duration, which makes market timing an elusive pursuit. As we’ve often highlighted, long-term investment success comes from time in the market, not timing markets. Maintaining a well-diversified portfolio and long-term outlook can help minimize stress and the risk of permanent impairment to capital, which is especially important in periods of heightened uncertainty.
As always, please reach out to your Ancora team if you have any questions, comments or concerns that we can address.