October 4, 2024
Just when the Fed was beginning to think all was lost in Laborland… we get a MONSTER print from the Bureau of Labor Statistics-- we are looking forward to Halloween in my household if you cannot tell! Back to the report, 254,000 jobs were added in September, and revisions to the prior month’s data add another 17,000 to the tally. The official unemployment rate fell to 4.1% in September, and U6 dropped by 0.2% MoM to close out the month at 7.7%. Hourly wages increased 0.4% relative to August, which is a good sign for real earnings and growth. On a sector basis, manufacturing encountered a bit of weakness in the employment arena (not surprising), but all in all this is an exceptionally strong report. Jay Powell and his colleagues should be pleased. We have spent a fair amount of time digging into the details of various aspects of the domestic and global economies in the past few months. At this juncture in ’24, it makes some sense to talk about some key September events and a couple that are on the immediate horizon.
Let’s start with the September FOMC meeting. In case you haven’t heard, the Federal Reserve initiated its easing cycle with a rate cut of 50 bps. After the August jobs report and some soft inflation data, a September cut was essentially a forgone conclusion. We weren’t entirely sold on the idea that the labor market needed as much help as Powell and Co seemed to think. Regardless, effective fed funds now stand at 4.83%. Moreover, the FOMC signaled its commitment to additional cuts through yearend and into ’25. It is difficult to square some of the data in the most recent SEP (Summary of Economic Projections), but let’s just say Mr. Powell is confident. Naturally, inflation is going to have to behave itself in order for the Fed cut rates as deeply as they expect.
Geopolitics grabbed headlines yet again. Israel is centerstage and the Middle East is in flames. Hezbollah’s top brass has been decimated, and Iran’s leadership finds itself in a rather awkward position with respect to its populace and military proxies (Hamas, Hezbollah, and the Houthis). The Ayatollah has called for solidarity in the Arab world to fight against a common foe, Israel—this is a particularly tall order given the level of bitterness between Sunni and Shia, but also because of the fact that little more than a year ago Israel and Saudi Arabia were on the verge of an historic diplomatic “deal of the century.” Of course, Saudi-Israeli “normalization” seems like a distant memory after what has transpired over the past several months—the Gaza invasion, college campus protests in the US, cross border missile and drone attacks, assassinations, exploding pagers and walkie talkies, and most recently ballistic missile launches. The world and the oil market are waiting with bated breath in anticipation of what comes next. Of course, we would be remiss if we didn’t mention the run in natural gas prices with front month contracts breaching $3.00 yesterday before closing a hair above $2.90. We are talking about a move of nearly 40% from the September closing low to yesterday’s intraday high. Chevron (CVX) halted production on two platforms off of Israel’s coast earlier this week, though operations have resumed.
September is behind us now and that means we are gearing up for another earnings season. This one is unique in that it will be punctuated by the November elections--Buckle Up! Q3 was rather interesting from an economic perspective, so it will be interesting to see how corporate America performed. We are still in the boat of $245/ share on the S&P 500 for 2024, and will see if that needs to be revised higher or lower—as ever, results and guidance are the keys. The Fed has already moved to a more accommodative posture, which should support the labor market, which should support the consumer, which should support spending, which should support growth, which should support earnings, which should support valuations, etc… “The backbone is connected to the neckbone”—maybe I should go as a skeleton for Halloween this year? The eyerolls from my kids would happen early and often. Happy Halloween and see you in November!
News Release: Bureau of Labor Statistics (The Employment Situation- September 2024)