03 Oct Locking Bias
The stock market experienced the “trampling effect” we discussed in yesterday’s update after the Bureau of Labor Statistics (BLS) released their estimate of new job creations for the month of September. Not only was the number strong, there was also an upward revision to the prior month’s figures that added another 38,000 to the total. The market anticipated a total of 215,000 new hires for the month of September, and the actual report came in at a whopping 248,000! The release brought euphoria to the stock market, but had a muted effect in the bond market. A report of this strength would typically cause the bond market to experience sharp losses. However, the losses so far have been reasonable.
In addition to the new hire report, it was also released that the unemployment rate took an unexpected drop, going from 6.1% down to 5.9%. This brings the Federal Reserve much closer to their initial stated goal of 5.5%. We know that as this number is approached they will be transitioning more to a tightening policy. In this environment, they use practices such as increasing interest rates and selling certain securities that are held on their balance sheets to restrict growth. However, we will likely only see the increase in interest rate part, as any adjustments to their balance sheet would likely cause further weakness in our economy in the short term.
With the release of the report behind us, markets can hopefully stabilize. With the S&P 500 now above its 100 day moving average, stock investors have reason to drive the market higher. This will be a headwind for the bond market today, and will likely limit any potential gains. With the state of the market and the continued volatility, we are going to maintain our locking bias.