The US economy has seen an unexpected surge in job growth for September 2023, adding 336,000 jobs across various sectors, including leisure and hospitality, government, health care, professional services, scientific services, social assistance and construction. This figure is nearly double what economists had predicted and is reported by the U.S. Bureau of Labor Statistics as the largest increase since January. Despite this growth, wage growth declined while unemployment remained steady at 3.8%.
However, the market response to this robust job growth has been negative. Major indices such as the S&P 500 and Nasdaq-100 fell by around 1% and 2% respectively on Friday. Concurrently, government bond yields rose, indicating a potential increase in mortgage and credit card rates. The 10-year Treasury yield reached its highest level since the onset of the financial crisis.
This surge in job growth has led to speculation about the Federal Reserve introducing more rate hikes to curb inflation.
Meanwhile, analysts at JPMorgan (NYSE:JPM) have expressed bearish views on the economic outlook due to declining service-sector activity and global manufacturing data. They suggest a potential policy error by the Federal Reserve, evidenced by falling economically sensitive sectors and doubts about further increases in bond yields. Given this analysis, they predict interest rates won't rise significantly.
The Hollywood strikes have resulted in a decrease of 5,000 jobs in the motion picture and sound recording sectors. Despite a stable unemployment rate of 3.8 percent, the market response was negative with a rise in government bond yields.
Following the Federal Reserve's hawkish interest rate projections last month, bond proxies like utilities and consumer staples have seen significant impacts due to surging bond yields. The S&P 500 has declined about 4%, with the utilities sector falling 13% and staples dropping around 8%. Investors are recalibrating their portfolios based on the Fed's outlook of sustained higher rates.
The U.S. employment report showing jobs growth surging above expectations and upcoming consumer price index and third-quarter earnings reports could further influence these trends, according to D.A. Davidson.
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