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Tag: economic performance

  • How financial conditions might play into Fed’s thinking after October’s CPI

    How financial conditions might play into Fed’s thinking after October’s CPI

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    Financial markets were jubilant over Tuesday’s data showing that U.S. consumer prices eased by more than expected in October, with Treasury yields plummeting on expectations the Federal Reserve will refrain from raising interest rates further and might even lower borrowing costs.

    In a nutshell, financial conditions suddenly became looser, with the benchmark 10-year yield
    BX:TMUBMUSD10Y
    at 4.46% in New York afternoon trading or down by more than half a percentage point from its October peak. Right now, conditions are “much more accommodative” than when Fed officials first suggested higher long-term yields could do the work of tighter monetary policy and take the place of a rate hike, according to Will Compernolle, a macro strategist for FHN Financial in New York.

    The jury is out on how much a continuation of looser financial conditions will matter to central bankers. At one point in Tuesday’s session, both the 10-year yield and the policy-sensitive 2-year yield
    BX:TMUBMUSD02Y
    were heading for their biggest one-day declines in more than six months as traders revved up expectations for at least four Fed rate cuts in 2024.

    Tuesday’s October CPI inflation report “will be very welcome to the Fed, though it will inevitably make the Fed’s challenge of restraining market optimism and financial conditions more difficult too,” according to New York-based advisory firm Evercore ISI.

    In a note, Evercore’s Vice Chairman Krishna Guha and others wrote that “the Fed’s challenge is that the market sees this and is trying to jump to the endgame, risking a larger/sooner easing in financial conditions than the Fed itself would like to see under prudent upside inflation risk management principles. So expect Fed officials to maintain a very cautious and relatively hawkish tone.”

    Indeed, there’s plenty of reasons to remain careful about reading too much into one report.

    After Tuesday’s data, Federal Reserve Bank of Richmond President Thomas Barkin said he’s not convinced inflation is on a clear path toward 2% despite recent progress in curbing price pressures.

    Some economists also said October’s CPI report isn’t the game changer that markets think it is. And FHN’s Compernolle said that if the Fed’s favorite inflation gauge, the personal consumption expenditures index (PCE), shows “horizontal momentum” when the October data is released later this month, there could be some on the Federal Open Market Committee “who feel the lower bond yields necessitate a higher fed funds rate.”

    Read: Economists in hawkish camp don’t surrender in wake of October consumer-inflation print

    At Hirtle Callaghan & Co., a West Conshohocken, Pa.-based firm which manages $18.5 billion in assets, Brad Conger, deputy chief investment officer, said that October’s CPI readings validate the Fed’s “wait-and-see” approach and that “it will take a rather long series of this order of magnitude to give them confidence to ease policy.”

    Meanwhile, “we worry that the recent easing of financial conditions and energy prices could easily start to counter the restraint,” Conger wrote in an email on Tuesday.

    In addition to a broad-based decline in Treasury yields, all three major U.S. stock indexes
    DJIA

    SPX

    COMP
    were higher as of Tuesday afternoon. The Dow Jones Industrial Average surged almost 500 points on a buying frenzy as investors also cheered Tuesday’s low “supercore” inflation figure that acts as a proxy for labor costs.

    Just last week, Fed Chairman Jerome Powell said that the Fed is wary of “head fakes” from inflation, or temporary improvements that only reverse over time.

    If Tuesday’s CPI data for October isn’t a “head fake,” “the Fed may be able to accept a loosening of financial conditions in order to prevent a recession,” said Lawrence Gillum, a Charlotte, North Carolina-based fixed-income strategist for broker-dealer for LPL Financial. “If it is a head fake, then the Fed will talk up the need for higher long-end yields. It will probably take a couple more months of this type of report or better to see whether that plays out.”

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  • Dow Jones slips after strong run as inflation data looms

    Dow Jones slips after strong run as inflation data looms

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    U.S. edged lower early Monday ahead of important inflation data in coming days, while gauging the possibility of a shutdown of the federal government at the end of the week.

    What’s happening

    • The Dow Jones Industrial Average
      DJIA
      was down 42 points, or 0.1%, at 34,242.

    • The S&P 500
      SPX
      fell 19 points, or 0.4%, to 4,396.

    • The Nasdaq Composite
      COMP
      shed 93 points, or 0.7%, to 13,705.

    The Dow, S&P 500 and Nasdaq Composite rose Friday to score back-to-back weekly gains.

    What’s driving markets

    The S&P 500 has jumped 7.2% over the past two weeks, helped by benchmark borrowing costs
    BX:TMUBMUSD10Y
    falling swiftly from 16-year highs on hopes that recent softer jobs data means inflation can ease further and the Federal Reserve has thus finished its campaign of interest rate rises.

    However, after that strong rally a more cautious tone prevails at the start of the new week as the market awaits a U.S. consumer-price index report for October, due Tuesday, that thus has the heft to underpin the latest bull run or bring it to a halt.

    Read: Stock-market rally faces make-or-break moment. How to play U.S. October inflation data.

    Core CPI growth — which strips out volatile items such as food and energy — is expected to remain steady at 0.3% month-on-month. The producer prices report for October will be published on Wednesday.

    See: This week’s October inflation data looms large on Washington’s economic radar

    October retail sales data is also on the docket this week, offering further clues to the health of the consumer on Wednesday.

    “Most eyes will be focused on the latest inflation numbers, but retail sales and retail earnings will also help set the tone,” Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, said in emailed comments.

    He warned that the market “may be a little more jittery than usual,” following a downgrade of the U.S. credit outlook by Moody’s Investors Service and the possibility of a shutdown of the federal government at the end of the week.

    Also see: House Republicans look to pass two-step package to avoid partial government shutdown

    Worries over a dysfunctional government contributed to Moody’s Investors Service late Friday cutting its outlook on the U.S. sovereign credit rating to negative from stable.

    “This week, we will plunge back into the U.S. political saga, as the government short-term funding deadline is due 17th of November and not much progress has been made to seal a fresh deal,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

    “Depending on the new funding resolution – or the lack thereof – we could see the U.S. 10-year yield return above 4.80%,” Ozkardeskaya added.

    Investors will also be keeping an eye out for a slew of earnings reports from retailers, including Home Depot Inc.
    HD,
    -1.24%
    on Tuesday, Target Corp.
    TGT,
    -0.50%
    on Wednesday and Walmart Inc.
    WMT,
    +0.15%
    on Thursday. Their comments on the health of the consumer may also play into thinking on the Fed.

    Indeed, the earnings season in general should have provided fundamental support to investor sentiment, according to analysts. “For Q3 2023, with 92% of S&P 500 companies reporting actual results, 81%…have reported a positive earnings per share surprise and 61%…have reported a positive revenue surprise,” said John Butters, senior earnings analyst at FactSet.

    The U.S. federal budget update for October will be published at 2 p.m. Eastern. Fed Governor Lisa Cook was due to deliver opening remarks at a Fed conference Monday morning.

    Companies in focus

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  • Stock-market rally faces make-or-break moment. How to play U.S. October inflation data.

    Stock-market rally faces make-or-break moment. How to play U.S. October inflation data.

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    It has been a while since a hot inflation report sparked wild gyrations in U.S. stocks, like it frequently did in 2022, but that doesn’t mean Tuesday’s consumer price index for October is destined to be a snooze-fest for markets.

    To the contrary, some Wall Street analysts believe it is possible, even likely, that the October CPI report could emerge as a critical catalyst for stocks, with the potential to propel the market higher on a softer-than-expected number.

    At least one prominent economist expects the data to show that consumer prices were largely unchanged last month, or even fell.

    “I would not be surprised to see a negative CPI inflation print for October,” said Neil Dutta, head of economics at Renaissance Macro Research, in commentary emailed to MarketWatch.

    “After all, retail gasoline and heating oil prices declined a little over 10% over the month and we know that energy, while representing a small share of total CPI, roughly 7%, can account for a large chunk of the month-to-month swings in CPI.”

    Markets at a crossroads

    The October CPI report arrives at a critical juncture for markets. Investors are trying to anticipate whether the Federal Reserve will follow through with one more interest rate increase, as it indicated in its latest batch of projections, released in September.

    Speaking on Thursday, Federal Reserve Chairman Jerome Powell left the door open to another move, but qualified this — as the Fed almost always has — by insisting that whatever the Fed decides, it will ultimately depend on the data.

    These comments added even more emphasis to next week’s data, said Thierry Wizman, Macquarie’s global FX and interest rate strategist, in commentary emailed to MarketWatch on Friday.

    “Our own view — expressed over the past few days — is that the Fed — and by extension the fixed-income markets — won’t be anticipatory. Rather, the Fed will be highly reactive to the data,” he said. “The next milestone is…CPI. It is likely to have a calming effect on markets, as traders weigh the prospect that a very low headline CPI result will further cool the prospect of excessive wage demands in the labor market.”

    Asymmetric risks

    While assessing the potential impact of a soft inflation report next week, at least one market analyst expects the market’s reaction to the June CPI report, released on July 12, might serve as a helpful template.

    Stocks touched their highest levels of the year within that month, as many interpreted the slower-than-expected increase in prices as an important turning point in the Fed’s battle against inflation. The S&P 500 logged its 2023 closing high on July 31, according to FactSet data,

    Tom Lee, who anticipated both the outcome of the June CPI report and the market’s reaction, told MarketWatch that, at this point, inflation would need to meaningfully reaccelerate to have an adverse impact on the stock market.

    The upshot of this is that the risks for investors heading into Tuesday’s report are likely skewed to the upside. Even a slightly hotter-than-expected number likely wouldn’t be enough to derail the market’s November rebound rally. While a soft reading could reinforce expectations that the Fed is done hiking rates, likely precipitating a rally in both stocks and bonds.

    “I’d say the setup looks pretty favorable,” Lee said.

    Even a modestly hotter-than-expected number likely wouldn’t be enough to derail the market’s November rebound.

    “I think the reaction function is changing for the stock market,” Lee said.

    “Because the Federal Reserve and public market kind of viewed the September CPI as a pretty decent number, and Powell even referred to it as such. Earlier in 2023, I think people would have viewed it as a miss.”

    U.S. inflation has eased substantially since peaking above 9% on a year-over-year basis last summer, the highest rate in four decades. The data released last month showed consumer prices climbed 0.4% in September, softer than the 0.6% from the prior month, but still slightly above expectations.

    However, the more closely watched “core” reading reflected only a 0.3% increase, which was in-line with expectations.

    How long will the ‘last mile’ take?

    There is a perception on Wall Street and within the Federal Reserve that driving inflation down from 3% to the Fed’s 2% target could pose more difficulty for the Fed. After all, most of the easing from last summer’s highs was driven by falling commodity prices and supply-chain normalization as the economic impact of the COVID-19 pandemic faded.

    Powell has repeatedly warned of a “bumpy ride,” and he reiterated on Thursday that the battle against inflation is far from over.

    See: Powell says Fed is wary of ‘head fakes’ from inflation

    Inflation data released this month, and in the months to come, could help to define investors’ expectations for how long this “last mile” might take, helping these reports regain their significance for markets.

    “I like a calm market, but I think CPI is coming more in focus these days now that we’re getting closer to that 2% target,” said Callie Cox, U.S. investment analyst at eToro, during a phone call with MarketWatch.

    Since the start of 2023, the S&P 500 index hasn’t seen a single move of 1% or greater on a CPI release day, according to FactSet data. By comparison, the biggest daily swings seen in 2022 occurred on CPI days, with the large-cap index sometimes swinging 4% or more in a single session.

    Economists polled by FactSet expect consumer prices rose 0.1% in October, following a 0.4% bump in September. They expect a 0.3% increase for core prices, which excludes volatile food and energy. Powell has said that he’s keeping a close eye on core inflation, as well as so-called “supercore” inflation, which measures the cost of services inflation excluding housing.

    To be sure, the CPI report isn’t the only piece of potentially market-moving news due during the coming week. Investors will also receive a monthly update from the Treasury that includes data on foreign purchases and sales of Treasury bonds, as well as a flurry of other economic reports, including potentially market-moving readings on housing-market and manufacturing activity.

    There is also the producer-price index, another closely watched barometer of inflation, which is due out Thursday.

    U.S. stocks have risen sharply since the start of November, with the S&P 500
    SPX
    up more than 5.3%, according to FactSet data.

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  • This week’s October inflation data looms large on Washington’s economic radar

    This week’s October inflation data looms large on Washington’s economic radar

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    Inflation data, a Fed speech and a government-shutdown deadline are on the calendar this week.


    MarketWatch photo illustration/iStock

    U.S. inflation data for October is clearly the economic highlight for markets, economists and policymakers this coming week. That’s because if price pressures continue their cooling trend from the summer, the Fed might be able to refrain from any more interest-rate hikes.

    Here’s a preview of the inflation report and other critical data and events that will have the markets’ attention this week.

    See: MarketWatch’s comprehensive economic calendar

    October consumer inflation

    Tuesday, 8:30 a.m. Eastern

    No economic reports matter more for the Federal Reserve’s interest-rate policy outlook than consumer inflation data. Inflation has been trending down since the summer, but many economists are wary that most of the progress was low-hanging fruit, and that it will take a lot to get back to the Fed’s 2% target. Fed Chairman Jerome Powell raised this concern in remarks on Thursday, saying the central bank was concerned about inflation “head fakes.”

    Economists polled by the Wall Street Journal expect headline CPI to moderate to a 0.1% rise in October, down from a 0.4% gain in the prior month, and the smallest increase since May.

    Over the past year, inflation is expected to rise at a 3.3% rate, down from 3.7% in the prior month.

    The improvement is expected to come mainly from gasoline prices.

    Core CPI, excluding volatile food and energy prices, is expected to rise 0.3%, matching a 0.3% gain in the prior month. The year-over-year rate is seen holding steady at a 4.1% annual rate.

    October retail sales

    Wednesday, 8:30 a.m. Eastern

    Economists expect retail sales to be weak, falling 0.1% in October after a 0.7% jump in September and a 0.8% gain in August.

    The outlook for consumer spending is one of the most intriguing questions about the outlook.

    Will the strong spending seen in the late summer fade away? With above-trend job growth and incomes rising, there seems no reason for consumers to pull back sharply. But many economists think that consumers are running out of excess spending power built up during the pandemic.

    Also see: Retail earnings begin this week. ‘It’s getting worse,’ an analyst says.

    Chicago Fed President Austan Goolsbee’s speech to the Detroit Economic Club

    Tuesday at 12:45 p.m. Eastern

    There are just under 20 public remarks from Fed officials scheduled this week. One of the highlights will be Chicago Fed President Austan Goolsbee’s moderated question-and-answer session before the Detroit Economic Club.

    Goolsbee, who joined the Fed at the beginning of the year, is comfortable speaking in public and on television from his days in the Obama administration, and afterwards as a pundit. His views also carry weight because he will be on any short list of potential replacements for Powell if President Joe Biden wins a second term.

    Goolsbee has looked prescient so far. In his first public speeches this summer, he suggested that there could be an improvement in inflation without a big rise in unemployment.

    Biden-Xi to meet at APEC summit

    Wednesday

    Biden and Xi will meet for the first time in a year at the Asia-Pacific Economic Cooperation summit in San Francisco, amid struggles in the Chinese economy and the recent strengthening of ties between XI and Russian Vladimir Putin.

    Derek Scissors, a senior fellow at the American Enterprise Institute, said investors should not expect anything market-moving from the talks. The Biden administration simply wants to get face time with Xi, he said.

    “The goal is to find out how to reach him, who are you supposed to talk to [to reach him in the future], and then have a good conversation with him where Biden can say a few things that we think he really needs to hear from us,” Scissors said.

    Gone are the days when the U.S. and China cooperated on economic issues, he said.

    Xi simply doesn’t care that much about the economy, Scissors said. He is more focused on “really strict party control of everything,” he added.

    Threat of a government shutdown

    Friday, midnight deadline

    The federal government will run out of money late Friday unless Congress passes legislation to keep the lights on.

    It is the first test for new House Speaker Mike Johnson. He has proposed a two-step government spending plan to keep the government open until early next year, but it remains uncertain whether this will break the logjam.

    Late Friday, Moody’s Investors Service lowered its outlook on the U.S. credit rating to “negative” from “stable.”

    This is actually positive for the prospects of a congressional deal, said Terry Haines, founder of Pangaea Policy, a political forecasting firm.

    Haines said he has lowered the odds of a government shutdown to 30% from 40% before the Moody’s move.

    “The last thing House Republicans should want to do…is show newly skeptical markets that they can’t even handle a continuation of government funding,” Haines said, in a note to clients.

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  • Home Prices Could Come Down. What It Would Take for an Ugly Slide.

    Home Prices Could Come Down. What It Would Take for an Ugly Slide.

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    Nov 12, 2023, 1:00 am EST

    Home prices keep going up, defying mortgage rates at 23-year highs and a housing market that hasn’t been this unaffordable since the 1980s. Everything looks steady on the surface but prolonged national U.S. home price declines could be around the corner for the first time in more than a decade, according to one housing expert.

    Continue reading this article with a Barron’s subscription.

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  • UK Economy Stagnated in Third Quarter

    UK Economy Stagnated in Third Quarter

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    By Joshua Kirby

    The U.K. economy stagnated in the third quarter for the first time this year, after slight growth in September offset a decline at the start of the quarter.
    

    Gross domestic product was flat between July and September compared with the previous three-month period, when the economy grew slightly, as it had in the first quarter, figures from the Office for National Statistics showed Friday.
    

    

    Economists had expected GDP to decline slightly, according to a poll carried out by The Wall Street Journal, though the flat growth was against an August figure that was revised down slightly to 0.1% growth from 0.2% previously.
    

    In September, the economy grew 0.2%, driven mainly by services growth. This helped offset a 0.6% decline in July.
    

    Compared with the same quarter a year ago, the U.K. economy grew 0.6%, the figures showed.
    

    Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
    

    

    

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    U.S. construction spending rises for the ninth month in a row in September
    
			
    U.S. construction spending rises for the ninth month in a row in September
    
			
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    Construction spending rose in September, as companies and the government continued to ramp up projects across the U.S.
    

    Spending on construction projects rose 0.4% in September to nearly $2 trillion, the Commerce Department reported Wednesday. 
    

    The…
      
    

    

    

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    U.S. pending home sales stay near record low despite modest pickup in September
    
			
    U.S. pending home sales stay near record low despite modest pickup in September
    
			
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    The numbers: U.S. pending home sales rebounded in September but remain near a record low as high mortgage rates and low inventory continue to hurt the real-estate sector.
    

    Pending home sales rose 1.1% in September from the previous month, according to the monthly index released Thursday by the National Association of Realtors.
    

    

    But pending home sales were still depressed on an annual basis due to the dearth of home listings. The September figure was the second-lowest reading since the NAR began tracking the data in 2001.
    

    Transactions were down 11% from last year.
    

    Nonetheless, the sales pace exceeded expectations on Wall Street. Economists were expecting pending home sales to fall 1.5% in September.
    

    Pending home sales reflect transactions where the contract has been signed for the sale of an existing home, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.
    

    The NAR also released an updated forecast for existing-home sales on Thursday. The group expects sales to fall 17.5% in 2023 to a pace of 4.15 million, which will be the slowest pace since 2008. Yet due to low inventory, the median home price will increase by 0.1% in 2023, the NAR said, to $386,700.
    

    The group expects home sales to rebound in 2024, rising 13.5% to a rate of 4.71 million. Home prices are expected to rise 0.7% next year, to $389,500. 
    

    The NAR also expects the 30-year mortgage rate to fall to 6.9% in 2023 and 6.3% in 2024. The 30-year was averaging 7.98% as of Wednesday, according to Mortgage News Daily.
    

    Big picture: The U.S. housing market is dealing with problems on both the demand and supply sides, but the NAR seems confident that the sector will recover in the new year.
    

    At present, not only are rates high enough to discourage home buyers, the lack of inventory is also making homes more expensive, which further spooks buyers. The NAR expects the pace of existing-home sales to fall to the slowest in 15 years, when the U.S. was in the midst of a recession caused by the subprime-lending crisis.
    

    What the realtors said: “Because of home builders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates,” NAR Chief Economist Lawrence Yun said. “This underscores the importance of increased inventory in helping to get the overall housing market moving.”
    

    Market reaction: Stocks
    
        DJIA
    

            SPX
    
       were mixed in early trading on Thursday. The yield on the 10-year Treasury note
    
        BX:TMUBMUSD10Y
    
       rose above 4.9%.
    

    

    

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    GDP bonanza: U.S. economy may have grown 5% in the third quarter
    
			
    GDP bonanza: U.S. economy may have grown 5% in the third quarter
    
			
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    The U.S. economy has not only defied widespread predictions of a sharp slowdown. It’s grown even faster.
    

    But that doesn’t mean a recession is far away. The U.S. has often experienced fast growth shortly before the bottom fell out.
    

    Let’s start with the good news. 
    

    

    Gross domestic product, the official scorecard of the economy, looks likely to top 4% or even 5% annual growth in the third quarter. The government will release its preliminary estimate on Thursday morning.
    

    Economists polled by The Wall Street Journal predict 4.7% GDP in the third quarter.
    

    Other top forecasters see even faster growth. S&P Global estimates 5.6% GDP and the  Atlanta Federal Reserve GDPNow forecast projects 5.4%.
    

    How fast is that? GDP only topped 5% once from 2010 to the start of the pandemic in early 2020.
    

    This is not what was supposed to happen.
    

    After solid 2%-plus growth in the first and second quarters, the economy was widely expected to slow down in response to rapidly rising interest rates. 
    

    The Federal Reserve has jacked up borrowing costs in the past year and a half to try to tame inflation, a strategy that typical depresses consumer spending and business investment. Those are the dual engines of the economy. 
    

    To some extent the Fed has succeeded. Home sales and construction, for instance, have tumbled due to the highest mortgage rates in decades. And manufacturers have taken a hit as customers curtailed purchases of goods and big-ticket items.
    

    The annual rate of inflation, meanwhile, has tapered to 3.7% as of September from a 40-year high of 9.1% in 2022.
    

    Still, spending and investment have not dropped off nearly as much as expected. And there are two reasons for that.
    

    The first is a strong and ultra-tight labor market, with unemployment hovering just below 4%. Most Americans who want a job have one, and as a result, they have been able to keep spending. Travel, recreation, leisure and hospitality have been the big winners.
    

    S&P Global estimates a flush of consumer spending in the third quarter will account for just over half of the growth. 
    

    The industrial side of the economy, for its part, has been the beneficiary of tens of billions of dollars in subsidies from the Biden administration to support green energy and bring home more manufacturing.
    

    The U.S. has also ramped up military aid to Ukraine and has to replace outgoing equipment, weapons and ammunition. 
    

    All the government money has helped to keep manufacturers from falling too far down the well. Government outlays could add as much as 0.6 percentage points to third-quarter GDP.
    

    Making the third quarter look even better, the U.S. trade deficit fell sharply and is likely to add 1.0 percentage point or more to GDP.
    

    A small rebound in the production of inventories, or unsold goods, would be the icing on the cake.
    

    So the economy is doing great, right? Maybe not.
    

    Consumers probably can’t keep spending at their current pace since their incomes are barely rising faster than inflation. Businesses are proceeding cautiously because of higher borrowing costs. And banks are more reluctance to lend.
    

    Other restraints on the economy include higher gasoline prices and a surge in long-term interest rates that make it far more expensive to buy houses, cars, appliances and the like.
    

    That’s why many forecasters believe the economy start to soften in final months of 2023. S&P Global, for instance, initially projects 1.7% growth in the fourth quarter.
    

    Nor does the third quarter’s heady growth rate suggest there is no reason to worry about a recession. The economy has expanded rapidly just before the onset of prior recessions.
    

    The economy grew at solid 2.5% pace right before the 2007-2009 Great Recession, for example. And GDP grew a frothy 4.4% in the first quarter of 1990 just several months before a recession started.
    

    Many of the same economic headwinds, it turns out, are still in place that led to widespread Wall Street predictions of recession earlier in the year.
    

    Indeed, some forecasters such as the Conference Board still insist a short recession is likely in 2024. Other economists are also on guard.  
    

    “I still believe a recession is coming — though far less severe than the 2008-2009 event,” said chief economist Steve Blitz of TS Lombard.
    

    

    

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    Why Bill Gross expects a U.S. recession to begin by year’s end
    
			
    Why Bill Gross expects a U.S. recession to begin by year’s end
    
			
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    Bill Ackman isn’t the only boldfaced Wall Street name who believes the U.S. economy is in worse shape than the official data suggest. 
    

    See: Bill Ackman cashes out bet against Treasury bonds as yields hit 16-year highs
    

    Bill Gross, a co-founder of fixed-income investing giant Pacific Investment Management Co., said Monday in a post on social-media platform X that the U.S. economy is likely headed for a recession by year’s end.
    

    

    “Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly. Recession in 4th quarter,” Gross said.
    

    Such an outcome would represent a remarkable turnaround, considering the Atlanta Federal Reserve’s GDP Now real-time indicator shows the U.S. economy expanding at a 5.4% annualized clip during the third quarter. Official GDP data is due Thursday, with economists polled by The Wall Street Journal looking, on average, for a 4.5% annualized growth figure.
    

    Many Wall Street economists had anticipated that the U.S. recession would slide into recession earlier this year. However, strength in construction, consumer spending and other areas has helped it defy expectations, as data show it has instead continued to expand at a solid pace.
    

    Revised data released last month by the Commerce Department showed the U.S. economy grew by 2.1% during the second quarter. Typically, investors only become aware of recessions in hindsight after they’ve been officially declared by the National Bureau of Economic Research.
    

    Rising auto-loan delinquencies are an alarming portent of economic pain to come, Gross said, citing data from Fitch Ratings, reported by Bloomberg News on Friday, which showed the percentage of subprime auto loans more than 60 days delinquent surpassed 6% in September. At 6.1%, it’s the highest rate ever recorded by the data series going back to 1994.
    

    As far as how investors might play this, Gross said he’s “seriously considering” investing in shares of regional banks, which have fallen substantially this year: the SPDR S&P Regional Banking ETF
    
        KRE,
    
       one popular exchange-traded fund tracking regional players down more than 30% year-to-date. He also touted some merger-arbitrage plays, a strategy he endorsed in a recent investment outlook. 
    

    He also recommended betting that the Treasury curve will continue steepening as it looks to break out of negative territory for the first time in more than a year. Rising long-term rates have nearly caught up with short term rates, with the 10-year yield
    
        BX:TMUBMUSD10Y
    
       within 30 basis points of the 2-year yield
    
        BX:TMUBMUSD02Y
    
       on Monday. 
    

    10-year yields have been lower than 2-year yields for 327 days, according to Dow Jones Market Data. That’s the longest stretch since the 444-trading day streak that ended May 1, 1980. 
    

    Gross is using interest-rate futures for his steepening trade. He expects the curve will re-enter positive territory before the end of the year as a slowing economy forces investors to adjust their expectations regarding the timing of Federal Reserve interest-rate cuts.
    

    “’Higher for longer’ is yesterday’s mantra,” Gross said. 
    

    Following a decadeslong career on Wall Street, Gross announced his retirement a few years back after a stint at Janus Capital Group. He joined Janus after a contentious exit from Pimco. 
    

    Nevertheless, Gross has continued to share his views on markets in posts on X, as well as in investing outlook letters published to his website, and during interviews with the financial press. 
    

    

    

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  • 
		
		
    
			
    U.S. home sales fell in September to the lowest level since the Great Recession
    
			
    U.S. home sales fell in September to the lowest level since the Great Recession
    
			
     [ad_1]
    

    

    The numbers: Home sales in September fell to the lowest level since 2010, as high mortgage rates continue to hammer the housing market.
    

    Aside from low inventory, rising rates are eroding buyers’ purchasing power, and drying up demand. Sales of previously owned homes fell by 2% to an annual rate of 3.96 million in September, the National Association of Realtors said Thursday.
    

    

    That’s the number of homes that would be sold over an entire year if sales took place at the same rate every month as they did in September. The numbers are seasonally adjusted.
    

    The drop in sales was slightly better than what Wall Street was expecting. They forecasted existing-home sales to total 3.9 million in September.
    

    Compared to September 2022, home sales are down by 15.4%. 
    

    Key details: The median price for an existing home in September rose for the third month in a row to $394,300. Prices are up 2.8% from a year ago. That was the highest price for the month of September since NAR began tracking the data.
    

    Home prices peaked in June 2022, when the median price of a resale home hit $413,800.
    

    Around 26% of properties are being sold above list price, the NAR noted.
    

    The total number of homes for sale in September fell by 8.1% from last year, to 1.13 million units. Housing inventory for the month of September was the lowest since 1999, when the NAR began tracking the data.
    

    Homes listed for sale remained on the market for 21 days on average, up from the previous month. Last September, homes were only on the market for 19 days.
    

    Sales of existing homes rose only in the Northeast in September, as compared with the previous month, by 4.2%. The median price of a home in the region was $439,900. 
    

    All-cash buyers made up 29% of sales, highest since January 2023. The share of individual investors or second-home buyers was 18%. About 27% of homes were sold to first-time home buyers.
    

    Big picture: The U.S. housing market is in the midst of a serious slowdown that is primarily driven by high mortgage rates. High rates spook home buyers, drying up demand, and high rates also deter homeowners from selling since they may have to purchase another home. For a homeowner with a 3% mortgage rate for the next few decades, there’s little incentive to move.  
    

    And the residential sector is likely to see sales fall further in October’s data, as the 30-year mortgage inches even higher. Demand for mortgages has collapsed, and some outlets like Mortgage News Daily are quoting a rate of 8% for the 30-year.
    

    Existing-home sales in 2023 could fall to the slowest pace since the housing bubble burst in 2008, real-estate brokerage Redfin said on Thursday, at a 4.1 million pace. 
    

    What the realtors said: “Mortgage rates and limited inventory has been the story throughout this year — no different this month, other than the fact that interest rates are moving higher,” said Lawrence Yun, chief economist at the National Association of Realtors. 
    

    “The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains,” he added. “We don’t want the Fed to overdo it and cause great harm to real estate.” 
    

    Yun also questioned whether there will be a “fundamental change” or a temporary one to the “American way of life” due to the slowdown in sales.
    

    Market reaction: Stocks were down in early trading on Thursday. The yield on the 10-year note
    
        BX:TMUBMUSD10Y
    
       rose above 4.9%.
    

    

    

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  • 
		
		
    
			
    Retail sales rise on strong car sales and Internet buying. Economy not slowing much.
    
			
    Retail sales rise on strong car sales and Internet buying. Economy not slowing much.
    
			
     [ad_1]
    

    

    Developing story. Check back for updates.
    

    The numbers:  Sales at U.S. retailers jumped a bigger-than-expected 0.7% in September in a sign households have enough buying power to keep the economy expanding.
    

    The increase was spurred by strong demand at auto dealers and Internet stores. Higher gas prices also played a role, however.
    

    

    Economists polled by The Wall Street Journal had forecast a 0.2% increase in sales.
    

    Retail sales represent about one-third of all consumer spending and usually offer clues on the strength of the economy.  
    

    Yet September also falls between the busy back-to-school and holiday-shopping seasons and tends to reveal less about how consumers are doing.
    

    Key details: Auto dealers posted a 1% gain in sales and helped to inflate the headline number.  Auto sales account for about 20% of all retail sales.
    

    Receipts at gas stations also rose nearly 1%, but that largely reflected higher gas prices. That’s not a good thing for households.
    

    Retail sales advanced a still-robust 0.6% when car dealers and gas stations are set aside, which gives a better idea of consumer demand.
    

    Sales at internet retailers stayed on a hot streak. They rose 1.1%.
    

    Sales climbed 0.9%% at bars and restaurants. Restaurant sales tend to rise when the economy is healthy and Americans feel secure in their jobs. Sales decline during times of economic stress.
    

    Over the past year, restaurant sales have surged 9.2% — more than twice as fast as inflation.
    

    On the negative side of the ledger, sales fell at big-box electronics stores, clothing stores and home centers such as Home Depot
    
        HD,
    
        +1.85%
    
       and Lowe’s
    
        LOW,
    
        +1.28%    .
       
    

    Sales in August were also revised up to show a 0.8% increase instead of 0.6%.
    

    Big picture: The retail sales report is the latest to suggest the economy is still expanding at solid pace and perhaps not decelerating as much as the Federal Reserve would like to help slow the rate of inflation. 
    

    Consumer spending has stayed fairly healthy because of rising wages and the lowest unemployment rate in decades. What’s more, incomes are finally increasing faster than inflation for the first time in a few years.
    

    Yet higher interest rates are pinching households and businesses and are bound to slow the economy in the months ahead. If so, retail spending is also likely to soften.
    

    Looking ahead: “Consumer spending shows little sign of flagging, especially when purchases increased on everything from durable goods, such as autos, to the least durable goods, food and drink at bars and restaurants,” said Robert Frick, corporate economist at Navy Federal Credit Union.
    

    “As long as the jobs market remains healthy, consumers should have the cash and confidence to maintain spending.” 
    

    Market reaction: Before the markets opened, the Dow Jones Industrial Average
    
        DJIA
    
      and S&P 500
    
        SPX
    
       were set to open lower in Tuesday trades.
    

    

    

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  • 
		
		
    
			
    Subprime car-loan rates are hitting 17%-22%. Should investors be worried?
    
			
    Subprime car-loan rates are hitting 17%-22%. Should investors be worried?
    
			
     [ad_1]
    

    

    Many borrowers with subprime credit have been paying 17% to 22% rates on new auto loans this year as the Federal Reserve’s inflation fight takes a toll on lower-income households.
    

    That borrowing range reflects the average cost, or annual percentage rate, for a loan in recent subprime auto bond deals, according to Fitch Ratings, an increase from last year’s average APR of closer to 14%.
    

    

    Higher borrowing costs can mean households need to put more of their income into monthly auto payments, ramping up the risks of late payments, defaults and car repossessions. Those risks, however, have yet to make investors flinch. 
    

    The subprime auto sector already has cleared almost $30 billion of new bond deals this year, according to Finsight, a pace that’s slightly below volumes from the past two years, but still above historical levels since 2008.  
    

    

              
    

    

    

    The subprime auto bond market is revved up, even as borrowing rate soar
    

          
    
            Finsight
    
          
    
  
    

    

    “I do believe there has to be a reckoning if rates stay higher for longer,” said Tracy Chen, a portfolio manager on Brandywine Global Asset Management’s global fixed income team. 
    

    Figuring out when the tumult might hit has proven difficult. Instead of slowing, the economy has shown resilience despite the Fed lifting its policy rate to a 22-year high of 5.25% to 5.5%. The central bank also indicated it might need to keep rates higher for some time to fight inflation. Longer-duration bond yields, as a result, have pushed higher, but still hover below 5%. 
    

    Subprime standoff
    

    Inflation eats away at paychecks, especially those of lower-wage workers, a problem the Fed hopes to solve by keeping borrowing rates elevated. A gauge of inflation out Thursday showed consumer prices were steady at a 3.7% yearly rate in September, above the Fed’s 2% target.
    

    “This recession has been on everyone’s mind for the past three years,” Chen said. While she thinks the economy will likely contract in the middle of 2024, a lot of damage could be done before that. “The longer rates stay here, the harder the landing.”
    

    For now, the Fed is widely expected to hold rates steady at its next meeting in November. “Fed policy makers are now shifting their focus from ‘how high’ to raise the policy rate to ‘how long’ to maintain it at restrictive levels,” said EY Chief Economist Gregory Daco, in emailed comments.
    

    Stocks were flat to slightly higher in choppy trade at midday Thursday after the inflation report came in hotter than forecast, with the Dow Jones Industrial Average
    
        DJIA
    
       near unchanged and the S&P 500 index
    
        SPX
    
       up 0.2%.
    

    Past recessions and the burden of higher interest costs typically hit lower-wage workers harder, making subprime credit a canary in the coal mine for the rest of financial markets. Even so, investors in subprime auto bonds have yet to demand significantly more spread, or compensation, to offset potentially higher defaults among these borrowers.
    

    Related: Subprime auto defaults on path toward 2008 crisis levels, say portfolio managers
    

    Take the AAA rated 2-year slice of a new bond deal issued in mid-October by one of the subprime auto sector’s biggest players. It priced at a spread of 115 basis points above relevant risk-free rate, up from a spread of 90 basis points on a similar bond issued in August, according to Finsight, which tracks bond data.
    

    When factoring in Treasury rates, the yield on the bonds bumped up to about 6% and 5.7%, respectively. The shot at higher returns and low delinquencies in subprime auto bonds have likely helped with investor confidence. The rate of subprime auto loans at least 60-day past due in bond deals was about 5% in September, according to Intex, up from historic lows around 2.5% two years ago.
    

    “I think people still feel confident,” Chen said of subprime auto bonds. When putting a recent bond out on a Wall Street list to gauge its market value, she said bids come in right away.
    

    

    

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    UK Retail Sales Slow in September as Consumers Avoid Big Ticket Purchases, BRC Says
    
			
    UK Retail Sales Slow in September as Consumers Avoid Big Ticket Purchases, BRC Says
    
			
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    By Michael Susin
    

    Retail sales growth in the U.K. slowed in September despite a fall in inflation as the high cost of living continues to put households’ budget under pressure, according to the latest sales-monitor report from the British Retail Consortium published on Tuesday.
    

    

    Total retail sales for the five weeks to Sept. 30 increased by 2.7% compared with the prior month, when it saw growth of 4.1%, and was at the same level as the three-month average growth, the report said. In September last year, retail sales were up 2.2%.
    

    Food sales rose 7.4% over the three months to September, while non-food sales further decreased 1.2%.
    

    “Big ticket items such as furniture and electricals performed poorly as consumers limited spending in the face of higher housing, rental and fuel costs. The Indian summer also meant sales of autumnal clothing, knitwear and coats, have yet to materialize,” BRC Chief Executive Helen Dickinson said in a note.
    

    Looking ahead, retailers are getting ready for the ‘Golden Quarter’ amid fierce competition that is likely to bring earlier and abundant promotions ahead of Christmas, KPMG U.K. Head of retail Paul Martin said.
    

    “Consumers will continue to seek out good deals, with price driving purchasing decisions. This is likely to be one of the most important golden quarters that we have seen in years, as for some in the sector, it could very much determine their future,” he adds.
    

    Dickinson highlighted that retailers’ efforts might be challenged by the 400 million pounds ($489.6 million) increase in business rates expected next year, and urged Chancellor Jeremy Hunt to scrap the rates rise in the upcoming budget statement.
    

    Write to Michael Susin at michael.susin@wsj.com
    

    

    

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    U.S. stocks staged a surprising rally on Friday. But can the party last?
    
			
    U.S. stocks staged a surprising rally on Friday. But can the party last?
    
			
     [ad_1]
    

    

    U.S. stocks saw a surprising bounce on Friday, culminating in the S&P 500 index’s biggest intraday comeback since the March banking crisis, even though a monthly jobs report for September came in much higher than expected.  
    

    So, are investors no longer worried about the Federal Reserve’s inflation fight or higher interest rates wrecking the U.S. economy?
    

    

    “Stocks initially sold off on the blockbuster jobs report which indicates the Fed may not be done,” said Gina Bolvin, president of Bolvin Wealth Management Group. “However, after digesting the strong labor market is still strong, stocks rallied. And why shouldn’t they? Will good news- finally – be good news?”
    

    Bolvin said part of the rally could be seasonal, with September typically being a rough months for stocks. There also has been increased optimism that the earnings recession for American corporations may be over, she said.
    

    Analysts are predicting corporate earnings growth rates of 5.9% for the fourth quarter for S&P500 companies, according to John Butters, senior earnings analyst at FactSet. Estimates are for the third-quarter of 2023  after the stock index’s fourth straight quarterly earnings decline on a year-over-year basis. 
    

    At Friday’s session lows, the S&P 500 index
    
        SPX
    
       was down 0.9%, but it ended up posting a 1.2% advance, its largest intraday comeback since March 24, 2023, according to Dow Jones Market Data. The Dow Jones Industrial Average
    
        DJIA
    
       booked a 0.9% gain and the Nasdaq Composite Index
    
        COMP
    
       rose 1.6% higher.
    

    “The movement in stocks today is certainly encouraging given yields are up as well,” said Chris Fasciano, portfolio manager, Commonwealth Financial Network. “But we will need to see follow through next week.”
    

    The yield on 10-year Treasury
    
        BX:TMUBMUSD10Y
    
       note rose for five straight weeks in a row to 4.783% on Friday, while the 30-year yield
    
        BX:TMUBMUSD30Y
    
      rose to 4.941%, according to Dow Jones Market Data.
    

    Read: Why 5% bond yields could wreak havoc on the market
    

    While the U.S. stock-market will be open for business on Monday, the bond market will be closed for Columbus Day and Indigenous Peoples Day holiday, giving investors somewhat of a pause before a big week of economic data that could shape the Fed’s next decision on interest rates. 
    

    “Ultimately, stocks and bonds will take their cues next week from the economic releases,” Fasciano told MarketWatch.
    

    Key items on the calendar for the week will be September inflation reports, with the producer-price index on Wednesday and the consumer-price index due Thursday. In between, Fed minutes of its policy meeting in September also are due to be released Wednesday.
    

    “That makes next week an important week for the future direction of both the bond and equity markets as the Fed will certainly be focused on those reports prior to their next meeting on Oct. 31-Nov. 1,” Fasciano said.
    

    

    

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    China’s Factory Floor Is Moving—But Not to India or Mexico
    
			
    China’s Factory Floor Is Moving—But Not to India or Mexico
    
			
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    China’s Factory Floor Is Moving—But Not to India or Mexico
    

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    U.S. stocks stage a surprising rally on Friday. But can the party last?
    
			
    U.S. stocks stage a surprising rally on Friday. But can the party last?
    
			
     [ad_1]
    

    

    U.S. stocks saw a surprising bounce on Friday, culminating in the S&P 500 index’s biggest intraday comeback since the March banking crisis, even though a monthly jobs report for September came in much higher than expected.  
    

    So, are investors no longer worried about the Federal Reserve’s inflation fight or higher interest rates wrecking the U.S. economy?
    

    

    “Stocks initially sold off on the blockbuster jobs report which indicates the Fed may not be done,” said Gina Bolvin, president of Bolvin Wealth Management Group. “However, after digesting the strong labor market is still strong, stocks rallied. And why shouldn’t they? Will good news- finally – be good news?”
    

    Bolvin said part of the rally could be seasonal, with September typically being a rough months for stocks. There also has been increased optimism that the earnings recession for American corporations may be over, she said.
    

    Analysts are predicting corporate earnings growth rates of 5.9% for the fourth quarter for S&P500 companies, according to John Butters, senior earnings analyst at FactSet. Estimates are for the third-quarter of 2023  after the stock index’s fourth straight quarterly earnings decline on a year-over-year basis. 
    

    At Friday’s session lows, the S&P 500 index
    
        SPX
    
       was down 0.9%, but it ended up posting a 1.2% advance, its largest intraday comeback since March 24, 2023, according to Dow Jones Market Data. The Dow Jones Industrial Average
    
        DJIA
    
       booked a 0.9% gain and the Nasdaq Composite Index
    
        COMP
    
       rose 1.6% higher.
    

    “The movement in stocks today is certainly encouraging given yields are up as well,” said Chris Fasciano, portfolio manager, Commonwealth Financial Network. “But we will need to see follow through next week.”
    

    The yield on 10-year Treasury
    
        BX:TMUBMUSD10Y
    
       note rose for five straight weeks in a row to 4.783% on Friday, while the 30-year yield
    
        BX:TMUBMUSD30Y
    
      rose to 4.941%, according to Dow Jones Market Data.
    

    Read: Why 5% bond yields could wreak havoc on the market
    

    While the U.S. stock-market will be open for business on Monday, the bond market will be closed for Columbus Day and Indigenous Peoples Day holiday, giving investors somewhat of a pause before a big week of economic data that could shape the Fed’s next decision on interest rates. 
    

    “Ultimately, stocks and bonds will take their cues next week from the economic releases,” Fasciano told MarketWatch.
    

    Key items on the calendar for the week will be September inflation reports, with the producer-price index on Wednesday and the consumer-price index due Thursday. In between, Fed minutes of its policy meeting in September also are due to be released Wednesday.
    

    “That makes next week an important week for the future direction of both the bond and equity markets as the Fed will certainly be focused on those reports prior to their next meeting on Oct. 31-Nov. 1,” Fasciano said.
    

    

    

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    Why 5% bond yields could wreak havoc on the market
    
			
    Why 5% bond yields could wreak havoc on the market
    
			
     [ad_1]
    

    

    The yield on the 30-year Treasury bond briefly rose above 5% again on Friday, opening the door to the likelihood of a more sustainable rise above that mark and the risk that the benchmark 10-year yield follows — moves which could wreak havoc across financial markets. 
    

    One big reason is that investors are likely to demand greater compensation for taking risk as yields hover around some of the highest levels of the past 16 years, asset managers said. Corporate credit spreads could keep widening in a sign of worsening economic conditions and higher overall risk. And with returns on government debt becoming a more favorable option for investments, the stock market may be vulnerable to repeated drubbings.
    

    Read: Treasury yields are climbing: ‘There’s never really been such an attractive opportunity for fixed-income investments’
    

    Stock investors nonetheless shook off Friday’s stunning official jobs report for September, which saw the U.S. add almost twice as many jobs as forecasters had expected. All three major stock indexes
    
        DJIA
    

            SPX
    

            COMP
    
        finished higher even though yields climbed on everything from the 1-month T-bill
    
        BX:TMUBMUSD01M
    
       to the 30-year bond
    
        BX:TMUBMUSD30Y.
    
       The yield on the long bond finished at 4.941% — the highest level since Sept. 20, 2007 — after rising past 5% during the New York morning. The rate on the 10-year note
    
        BX:TMUBMUSD10Y
    
        ended at 4.783%, the second-highest level of this year. 
    

    Yields are returning to more normal-looking levels that prevailed before the 2007-2009 recession as the result of aggressive selloffs in government debt. More important than the absolute level of yields is the speed with which they have been heading to 5%. In the words of analyst Ajay Rajadhyaksha of Barclays earlier this week, there’s “no magic level” that will turn the current selloffs into a rally, and stocks have substantial room to reprice lower before bonds stabilize.
    

    “I think the market isn’t breaking yet, but a 5% 10-year yield is coming,” said Robert Daly, who manages $4.5 billion in assets as director of fixed income at Glenmede Investment Management in Philadelphia. “We’re already here on 30s and not that far away on 10s. Investors are trying to figure what level breaks the market, and I don’t think you can put your finger on the pulse as to what that level is.”
    

    Still, “a higher level of interest rates and yields is going to start having ramifications for broader markets at large,” leaving many investors hesitant to buy just about anything due to the volatility, Daly said via phone on Friday, after the release of September’s hot payrolls data.  
    

    Friday’s data, which showed the U.S. creating 336,000 new jobs last month or almost double what economists had expected, is opening the door to a possible interest rate hike by the Federal Reserve on Nov. 1. The strong labor market means the Fed’s higher-for-longer mantra in rates is still in play and “the market is in a tenuous position to navigate all these things because of all the uncertainty,” Daly said.
    

    “Yields sustainably above 5% for a longer period of time will act as a weight on the market in terms of how you value risk compensation,” he said. “Investors are going to ask for more compensation to take risk and when you see liquidity evaporate more and more, that’s what’s going to turn the market over.” 
    

    Friday’s price action was the second time this week that data related to the robust U.S. labor market has triggered a bonds selloff. On Tuesday, a snapback in U.S. job openings for August sent the 10- and 30-year yields to their highest closing levels since August-September of 2007. 
    

    The next day, high-grade corporate-credit spreads widened for a seventh consecutive session. Daniel Krieter, a fixed-income strategist at BMO Capital Markets, wrote that “if rates continue to move higher or simply remain at these elevated levels for a significant period of time, it is going to have a pronounced effect on the creditworthiness of corporate borrowers, particularly in the high yield space.”
    

    In a note on Friday, Krieter’s colleagues, rates strategists Ian Lyngen and Ben Jeffery, wrote that “it’s not difficult to envision 10s maintain a range between 4.75% and 5.00%.” 
    

    “The longer 10s hold this range, the more convinced the market will become that elevated yields are here to stay,” Lyngen and Jeffery said. “Admittedly, we’ve been surprised by the muted response in U.S. equities from the spike in yields and expect that’s due in part to the expectation for a swift reversal. In the event a correction fails to materialize, stocks will be overdue for a more meaningful reckoning.”
    

    The risk of “something breaking” will remain top of mind and “there is no shortage of risks facing equities and credit as rates continue to climb,” they added. “It’s not only the outright level of yields, but the length of time that borrowing costs stay elevated will also hold implications for risk asset valuations.”
    

    

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    U.S. stocks end higher after blockbuster September jobs report as S&P 500 snaps 4-week losing streak
    
			
    U.S. stocks end higher after blockbuster September jobs report as S&P 500 snaps 4-week losing streak
    
			
     [ad_1]
    

    

    U.S. stocks closed higher Friday, with the S&P 500 eking out a modest weekly gain, as investors assessed a monthly jobs report that showed both a blockbuster surge in jobs created along with a slowdown in wage pressures.
    

    How stock indexes traded
    

      

    • 
      The Dow Jones Industrial Average
      
        DJIA
      
       rose 288.01 points, or 0.9%, to close at 33,407.58.
      

      • 

    • 
      The S&P 500
      
        SPX
      
       gained 50.31 points, or 1.2%, to finish at 4,308.50.
      

      • 

    • 
      The Nasdaq Composite
      
        COMP
      
       climbed 211.51 points, or 1.6%, to end at 13,431.34. 
      

      • 

    

    For the week, the Dow slipped 0.3% while the S&P 500 edged up 0.5% and the Nasdaq gained 1.6%. The Dow fell for a third straight week, while the S&P 500 snapped a four-week losing streak and the Nasdaq saw back-to-back weekly gains, according to Dow Jones Market Data.
    

    

    What drove markets
    

    U.S. stocks climbed Friday, after reversing course from their slide earlier in the session as investors parsed a U.S. employment report that was stronger than forecast.
    

    “Wages slowed down,” said José Torres, senior economist at Interactive Brokers, in a phone interview Friday. “That was a great development” as the Federal Reserve aims to bring down inflation through monetary tightening.
    

    Investors have worried that a hot labor market will keep wage growth elevated, adding to inflationary pressures that could see the Fed keep interest rates higher for longer or potentially hike its benchmark rate one more time this year.
    

    A report Friday from the Bureau of Labor Statistics showed the U.S. economy created 336,000 jobs in September, far surpassing economists’ expectations for 170,000 new jobs. Also, the report said job gains in August and July were revised higher. 
    

    See: Jobs report shows big 336,000 gain in hiring in September. Labor market still hot.
    

    But other details from the report were slightly more favorable in terms of monetary policy concerns.
    

    For example, average hourly wages rose a mild 0.2% in September, bringing the 12-month rate of change through September to 4.2%, a slower pace than the prior month’s year-over-year rate of 4.3%.
    

    “Even though the headline number was 2.5 times what Wall Street had anticipated, the more important detail below the surface was that wage inflation actually cooled,” said Sam Stovall, chief investment strategist at CFRA, during a phone interview with MarketWatch.
    

    Renaissance Macro Research’s Neil Dutta said in a note that the jobs report was consistent with a soft landing for the economy and the Fed’s objective to lower the inflation rate back to 2%. 
    

    Also see: Why another Fed rate hike this year ‘still a close call’ after jobs report, according to JPMorgan’s David Kelly
    

    “The strong labor market gives credence to the base case still being a soft landing,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a phone interview Friday. But that soft-landing narrative is “somewhat fragile and data dependent,” he said.
    

    See: U.S. stocks stage a surprising rally on Friday. But can the party last?
    

    Investors will be watching for data scheduled to be released next week on September inflation from the consumer-price index and producer-price index.
    

    Meanwhile, economists from Goldman Sachs Group said in a note Friday that “the continued rebalancing of the labor market” is consistent with their expectation that the Fed is done raising rates this year, despite senior Fed officials projecting another hike in their latest batch of forecasts, released last month. 
    

    Federal-funds-futures traders are expecting the Fed will keep its benchmark rate at the current range of 5.25% to 5.5% at its policy meetings in November and December, according to the CME FedWatch Tool.
    

    “I’m of the belief that the Fed will not hike again this year,” BMO’s Ma said. “I don’t think it needs to.”
    

    Meanwhile, the yield on the 10-year Treasury note
    
        BX:TMUBMUSD10Y
    
       climbed 6.8 basis points to 4.783%, rising for five straight weeks, according to Dow Jones Market Data. 
    

    Rising Treasury yields, particularly on the long end of the yield curve, have been blamed for a selloff in stocks over the past couple months. But the S&P 500 is now up so far in October, with a small gain of 0.5%, according to FactSet data.
    

    Companies in focus
    


    Steve Goldstein contributed to this report.
    

    

    

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    How 10-year Treasurys could produce 20% returns, according to UBS
    
			
    How 10-year Treasurys could produce 20% returns, according to UBS
    
			
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    Carnage in the bond market in September could tee up an opportunity for investors to earn big returns on U.S. government debt in a year.
    

    Owners of 10-year Treasury
    
        BX:TMUBMUSD10Y
    
       notes at recent yields of around 4.5% could reap up to 20% in total returns in a year if the U.S. economy stumbles into a recession, according to UBS Global Wealth Management.
    

    

    The key would be for U.S. debt to rally significantly as investors scramble for safety in the roughly $25 trillion treasury market.
    

    “U.S. yields remain well above long-term equilibrium levels, providing scope for them to fall as the macroeconomic outlook becomes more supportive for bonds,” a team led by Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, wrote in a Friday client note.
    

    Their base-case call is for the 10-year Treasury yield to fall to 3.5% in 12 months, with it easing back to 4% in an upside scenario for growth, and for the economy’s benchmark rate to tumble as low as 2.75% in a downside scenario of a U.S. recession.
    

    “That would translate into total returns over the period of 14% in our base case, 10% in our upside economic scenario, and 20% in our downside scenario.”
    

    See: The market ‘may be overpaying you’ on a 10-year Treasury, says Lloyd Blankfein
    

    A rally in Treasury debt could help boost funds that track the Treasury market and the broader U.S. bond sector. The popular iShares 20+ Year Treasury Bond ETF
    
        TLT
    
       was down 10.9% on the year through Friday, while the iShares Core U.S. Aggregate Bond ETF
    
        AGG
    
       was 3% lower, according to FactSet.
    

    A tug of war has been developing in the Treasury market, with fear gripping investors this week as bond yields spike in the wake of signals last week from the Federal Reserve that interest rates may need to stay higher for longer than many on Wall Street anticipated.
    

    “Bond vigilantes” unhappy about the U.S. deficit have been demanding higher yields, while households and hedge funds have been piling into Treasury securities since the Fed began raising rates in 2022. 
    

    Much hinges on how painful things get if rates stay high, which would ratchet up borrowing costs for households, companies and the U.S. government as the Fed works to get falling inflation down to its 2% target.
    

    Hedge-fund billionaire Bill Ackman this week said he thinks Treasury yields are going higher in a hurry, as part of his bet that the 30-year Treasury yield
    
        BX:TMUBMUSD30Y
    
       has more room to climb. 
    

    The 10-year Treasury edged lower to 4.572% on Friday, after adding almost 50 basis points in September, which helped the stock market reclaim some lost ground in a dismal month, while the 30-year Treasury yield pulled back to 4.709%, according to FactSet. 
    

    The Dow Jones Industrial Average
    
        DJIA
    
       posted a 3.5% decline in September, its biggest monthly loss since February, the S&P 500 index
    
        SPX
    
       fell 4.8% and the Nasdaq Composite Index
    
        COMP
    
       shed 5.8% for the month.
    

    

    

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