Mid-Week Market Minute 10.4.23

Interest Rates Affecting Markets; Key Jobs Data Coming Friday

Stocks around the globe were weaker to start October as Treasury yields touched their highest levels since 2007. Higher interest rates have been the primary driver behind the recent struggles in the market, as markets adjust to the idea higher rates may be here to stay, at least for a while. Following a relatively quiet summer, volatility has been on the rise with the VIX, or Volatility Index, briefly trading over 20 on Tuesday for the first time since this spring. More rate-sensitive sectors such as utilities have lagged the broader market recently as the yields on these traditionally stable dividend stocks have grown less attractive on a relative basis as they compete with 4.5% - 5.5% risk-free yields in Treasuries.

On the data front, mortgage demand hit its lowest point since 1996, according to the Mortgage Bankers Association. The rate on a 30-year fixed mortgage is rapidly approaching 8%, making both new and existing homes much less affordable, particularly for entry-level buyers. Jobs data on Tuesday showed continued strength in the labor market. The August JOLTS survey showed 9.6 million vacancies in the month, notably higher than the consensus estimate of 8.8 million. That indication of continued strength in the labor market was tempered by the ADP private payroll report on Wednesday, which showed an increase of 89,000 in jobs for September, well below the consensus estimate of 150,000.

Strength in the labor markets and the economy will continue to be key considerations for the Federal Reserve as they determine whether to raise rates further from here. Key jobs data will come Friday, Oct. 6, when the Bureau of Labor issues the widely followed nonfarm payrolls report. Nonfarm payrolls are expected to increase 160,000 for September, with the unemployment rate expected to fall from 3.8% to 3.7%. In addition, the closely watched wage inflation (average hourly earnings) is expected to have risen 4.3% on an annual basis.

Source: GSAM, CNBC, JPMorgan

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