Stocks slumped and bond yields climbed as data showing a still hot US jobs market threw cold water on expectations the Federal Reserve would soon moderate its pace of interest-rate hikes to prevent a more significant economic slowdown.
(Bloomberg) — Stocks slumped and bond yields climbed as data showing a still hot US jobs market threw cold water on expectations the Federal Reserve would soon moderate its pace of interest-rate hikes to prevent a more significant economic slowdown.
Almost 95% of the companies in the S&P 500 retreated, with a selloff in technology shares weighing heavily on the market.
Treasury 10-year yields climbed, pushing toward a 10th straight week of increases — the longest winning run since 1984. The dollar rose. Bitcoin sank below $20,000.
The swap contract for the November Fed meeting priced in nearly 75 basis points of tightening.
The market-implied expectation for where the policy rate will peak also increased, with the derivative contract for the March gathering around 4.65%. The current range for the benchmark rate stands between 3% and 3.25%.
Fed’s Williams Sees Rates Heading to Around 4.5% Over Time
The September jobs report is the latest illustration of the worrisome strength of the US job market at a time when the Fed wants to see just the opposite — cooling wage growth and ultimately inflation.
Several Fed officials, in separate remarks this week, delivered a resolutely hawkish message that price pressures remain elevated and they won’t be deterred from raising rates by volatility in financial markets.
All eyes will now be on next week’s US inflation data after a hotter-than-expected reading in August tempered hopes of a nascent slowdown.
Separately, minutes from the Fed’s September meeting will give clues into the central bank’s tolerance for economic pain after policy makers delivered a third straight 75-basis-point hike and signaled they’ll continue to tighten monetary conditions for now.
Wall Street’s reaction to jobs report:
Jeffrey Roach, chief economist at LPL Financial:
“In a word: ‘frustrating.’ As long as job gains are strong, the markets should expect aggressive rate hikes by the Federal Reserve.”
Win Thin, head of currency strategy at Brown Brothers Harriman:
“Bottom line: 75 bp in November is a ‘done deal,’ and I think 75 bp in December is becoming a real possibility.”
Callie Cox, U.S.
Investment Analyst at eToro:
“The job market is still in good shape, which is great news for the economy. But in this ‘bizarro world’ of aggressive Fed rate hikes, the market may see this as a reason to brace for more turmoil.
These numbers still look too hot in the context of unusually high inflation.”
Michael Shaoul, chief executive officer at Marketfield Asset Management:
“This report should keep expectations of any ‘dovish pivot’ at bay, and underlines our concerns that any shift in policy is much more likely to be provoked by much worse financial market conditions than a soft landing in the underlying US economy.”
David Donabedian, chief investment officer of CIBC Private Wealth US:
“The report puts an exclamation point on the idea that this bear-market bottoming process is going to be a long one.
The Fed is probably going to be raising rates into spring and summer next year — and that will continue to be a headwind.”
Shawn Cruz, head trading strategist at TD Ameritrade:
“The market has been in a ‘bad-news-is-good-news’ mentality and there’s really no bad news in this report.
It’s a solid jobs report, but it’s not what the market wants to see because it doesn’t give the Fed a reason to pause or shift away from its hawkish intentions.”
Ronald Temple, managing director at Lazard Asset Management:
“While job growth is slowing, the US economy remains far too hot for the Fed to achieve its inflation target.
The path to a soft landing keeps getting more challenging. If there are any doves left on the FOMC, today’s report might have further thinned their ranks.”
Seema Shah, strategist at Principal Global Investors:
“Today’s job number is a hawkish reading, with almost all the elements of the report moving in the wrong direction for the Fed.”
Ian Lyngen, head of US rate strategy at BMO Capital Markets:
“On net, it was a strong enough read to keep a 75 bp Nov hike as the path of least resistance, but the deceleration in wage growth YoY adds to the case for a slowed hiking pace to 50 bp in December, and we still expect the final 25 bp hike in February to reach terminal”
Cliff Hodge, chief investment officer at Cornerstone Wealth:
“The September jobs report reinforced the fact that the labor market remains tight and will keep the Fed on course for continuing to aggressively tighten monetary policy.
The one silver lining from the report is on the wage front. Average hourly earnings continued to moderate month over month, which may help future inflation readings, but does nothing for the market today.”
Anxiety over the struggles from central banks to rein in inflation has been running rampant.
Investors poured the most money into cash since April 2020 on fears of a looming recession, but stocks could see further declines as they don’t fully reflect that risk, say Bank of America Corp. strategists.
Even as major benchmarks bounced off last month’s lows, the bank’s report citing EPFR Global data showed cash funds received nearly $89 billion in the week through Oct.
5, while investors withdrew $3.3 billion from global stock funds.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.9% as of 10:41 a.m. New York time
- The Nasdaq 100 fell 2.7%
- The Dow Jones Industrial Average fell 1.4%
- The Stoxx Europe 600 fell 1%
- The MSCI World index fell 1.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $0.9770
- The British pound fell 0.6% to $1.1098
- The Japanese yen was little changed at 145.21 per dollar
Cryptocurrencies
- Bitcoin fell 2% to $19,645.68
- Ether fell 1.8% to $1,340.1
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 3.89%
- Germany’s 10-year yield advanced 13 basis points to 2.22%
- Britain’s 10-year yield advanced six basis points to 4.23%
Commodities
- West Texas Intermediate crude rose 3.1% to $91.17 a barrel
- Gold futures fell 0.9% to $1,706.10 an ounce
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