Market shrugs off strong jobs data
The Bureau of Labor Statistics (BLS) announced total non-farm payrolls (NFM) rose by 336,000 in September, with the unemployment rate remaining at 3.8%. This was far higher than even the high end of expectations. In addition, non-farm payroll numbers for the prior two months were revised higher. Earlier in the week, the JOLTS data (Job Opening and Labor Turnover Survey) showed over 9.6MM open jobs, higher than the expected 8.8MM jobs.
- While markets sold off over 1% following the JOLTS number earlier in the week, and the initial reaction post the NFM number on Friday was negative, the stock market bounced back to end the week higher
- It may seem counterintuitive that the market would sell off on strong economic data, but as we have discussed often over the past year, good economic data means higher interest rates, which is generally bad for stocks
- The market’s resiliency could mean that stocks are discounting stronger growth to counterbalance higher rates
- Either way, interest rates continued to rise this week, with the 30-year treasury briefly trading north of 5% for the first time since 2006
Bitcoin rises despite risk-off
Bitcoin traded in the ~$28,000 context to end the week, rallying off late summer lows. This contrasts with risk assets, including tech stocks and commodities selling off in recent weeks.
- For the last several years, Bitcoin has correlated to other risk assets, most notably technology stocks
- This was evident throughout the rally of late 2020 and 2021 and the selloff in 2022
- The recent divergence is notable, given most risk assets have been selling off
- We experienced a similar dynamic earlier in the year during several large bank failures
- Currently, there is a focus on the United States untenable fiscal situation
- This is worth highlighting, given Bitcoin’s ultimate potential use case as “digital gold”
Yield curve nears un-inversion
If you have followed the financial press over the last several years, you may have heard the term “yield curve inversion.” This refers to when short-term interest rates on US government debt are higher than long-term interest rates. This is an uncommon scenario and has often pre-dated recessions. Over the last few weeks, as long-term interest rates have risen, the spread between short and long-term rates has narrowed significantly. The spread between the 3 T-bill and the 10-year treasury has gone from -1.88% at its peak to -0.76%.
- The reason yield curve inversion is uncommon is because investors should demand a higher interest rate to lend money to the government for a longer period than for a shorter period
- Yield curve inversion often happens ahead of recessions as investors rush into long-term bonds, pushing yields down, in anticipation of the Federal Reserve lowering short-term interest rates to stimulate the economy (to combat the aforementioned recession)
- It is often the case, however that recessions only begin at or near the time when yield curves un-invert
- While no indicator is perfect, many have been paying attention to the long period of inversion and when we may see that coming to an end, which may be imminent