Market Update 10/10/22

Mark Amstislavskiy

Amid uncertainty regarding the Federal Reserve’s outlook on inflation, markets were highly volatile from Oct. 4 to Oct. 10.

Tuesday began with large gains across all three major indexes, with the Dow Jones Industrial Average, Nasdaq composite and S&P 500 rising 2.8%, 3.3% and 3.1%, respectively.

Gains were fueled by data from the U.S. Department of Labor’s latest Job Openings and Labor Turnover Survey, which showed that openings fell by 10% in August. In the current market, a weakening labor market can be seen as good news because it raises investors’ hopes that the Fed will slow its pace in the fight against inflation.

“If that trend continues, then the Fed will maybe start to pull off a little bit, in terms of the last few hikes that are priced into the market between now and early next year,”  Jack Janasiewicz, a portfolio manager for Natixis Investment Manager Solutions, told The Wall Street Journal.

Wednesday saw a turnaround, as the  Dow fell 0.2%, the Nasdaq fell 0.1% and the S&P 500 fell 0.2%. Automatic Data Processing Inc., released a report showing that 208,000 jobs were added in the private sector, muffling investors’ hopes that the Fed will put an ease on its interest rate hikes.

OPEC’s agreement to decrease oil output by 2 million barrels per day further threatened to exacerbate inflation and dampen growth. Following the announcement on Wednesday, the price of Brent Crude oil rose 1.7%.

Markets continued their decline into Thursday, with the Dow, the Nasdaq and the S&P 500 losing 1.1%, 0.7% and 1% respectively. While news suggesting a weakening labor market early in the week drove the indexes to major gains, a hawkish input from Fed officials made it seem increasingly unlikely that the Fed will change course.

“There is a misconception that the Fed will make a pivot as soon as we see an economic deterioration,” Florian Ielpo, Lombard Odier Investment Managers’ head of macro and multiasset portfolio manager, told The Wall Street Journal.

The September jobs report on Oct. 7 showed that labor markets were still strong, with employers adding 263,000 jobs in September. The unemployment rate also ticked down to a multi-decade low of 3.5%, suggesting that the Fed will need to continue moving aggressively to tame inflation in a tight labor market.

The report pushed markets further down on Friday, with the Dow falling 2.1%, the Nasdaq falling 3.8% and the S&P 500 falling 2.8%. Despite this, large gains early in the week kept all three major indexes in the green. The Dow, the Nasdaq and the S&P 500 ended the week up 2%, 0.7% and 1.5% respectively.

Following new restrictions on semiconductor exports imposed by the Biden administration, stocks ended lower again after a volatile trading day on Monday. The Dow and the S&P 500  fell 0.3% and 0.7% respectively. The Nasdaq, which is comprised mostly of technology stocks, sustained the largest loss of 1%.

With strong labor market data pointing to further rate increases, investors will look to Oct. 13’s inflation report to provide major input into the trajectory of monetary policy.