Weekly Market Update: October 14, 2024

The nation added an estimated 254,000 jobs in September. That figure far exceeded the consensus forecast of 150,000 and was accompanied by a drop in the unemployment rate from 4.2% to 4.1%. The majority of the gains were in the government, healthcare, and, maybe more importantly, the services sectors. Meanwhile, the number of positions available climbed to 8.04 million last month. All of these are positive signs about the health of the U.S. labor market.

The favorable employment figures come as inflation moderates. The Personal Consumption Expenditures (PCE) Price Index eased in August, with the headline 12-month figure of 2.2% moving close to the Federal Reserve’s target. The central bank, which has a dual mandate to promote price stability and foster full employment, is doing a good job on both fronts. This has kept the possibility of a “soft landing” for the U.S. economy in play, assuming that inflation remains in check. Investors should note that the September readings on consumer and producer prices were due shortly after we went to press.

Treasury yields moved higher over the last fortnight. The labor figures assuaged some of the market’s concerns about a slowing economy, which had investors exiting some of their positions in risk averse fixed-income securities. Rising sentiment that the Fed will be more measured in reducing the federal funds rate at the November Federal Open Market Committee (FOMC) meeting also put upward pressure on bond yields.

Meantime, the economic outlook overseas is more concerning. That is because continued fighting in the Middle East and Ukraine threatens to disrupt or at the very least slow global supply chains, especially for energy and food commodities. On point, the price of oil has risen since tensions escalated between Israel and Iran.

Conclusion: Stocks started October, a month that at times can be quite volatile, with mixed results. Given the slightly less-dovish outlook for monetary policy following the labor data, we think third-quarter earnings results will be the next big event for Wall Street. With valuations looking quite frothy entering the season, we recommend the stocks of companies that have a long history of delivering steady financial results. In recent quarters, companies that have failed to meet expectations have been punished by the market.

Source: ValueLine.com