We got the September payroll report on Friday and it was an upside surprise coming in at +254k (154k was expected). Also, the prior two months were revised higher for an additional +72k and this evidences the labor market continues to be in good shape.
The household survey said +450k net new jobs were created and because it exceeded the +150k person rise in the labor market, the unemployment rate ticked down by one tenth to 4.1%.
What about the Fed’s next move?
The strength of the September payroll report will close the door on a 50bps interest rate cut at the Fed’s November 7th meeting. However, we should get another 25bps and then one more early next year. This means the Fed can follow a ‘measured pace’ in normalizing the yield curve.
The Shape of the Yield Curve
We can see in the chart below that the yield curve has moved quite a bit over the past three months. You can see the Fed’s 50bps rate cut on the far left side of the chart (blue line). Also, we can see that longer tenors on the right side of the blue line have pushed higher over the past month. This is a sign the yield curve is moving towards a positive slope which is considered ‘normal’. I expect that longer tenors will continue to whip around in the coming months and the market will soon begin to consider a terminal rate or the place where the Fed stops cutting rates.
The S&P 500 Chart
Not much upside progress this week in stocks and this may be part of a consolidation process in a longer-term uptrend. The one new variable is the price of oil due to overseas military conflicts and we did see energy stocks post a 6% rise this week so this is an area to watch in the coming months. Also, higher oil could re-ignite inflation but that would be a 2025 issue.
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