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Financial Market Update – Week of 11/06

November 6, 2023

After stocks posted a dismal October, a fresh month seemed to make all the difference in sentiment and risk appetite.

Overall, the large-cap S&P 500 added 5.85%, the Nasdaq 100 increased by 6.48%, and the Dow Jones Industrial Average rose by 5.07%.

Fed Unchanged

As was widely expected, the Federal Reserve (Fed) left rates unchanged at its November 1st policy meeting. No surprises there, but the Fed rate decision still sparked a giant stock rally Why?

It’s not always about what the Fed does, but what the Fed doesn’t say or what it gives clues about. Yes, it is somewhat of a passive-aggressive relationship with the Fed and the markets.

Since Federal Reserve Chair Jerome Powell did not say much about raising rates further, the market expectations that the Fed is finished raising interest rates increased last week. It is important to note and emphasize that Powell did not explicitly say that rate hikes are complete. 

As of the close of last week, the market is favoring a 25-basis-point rate cut in May of 2024, according to the CME FedWatch Tool.

Markets like to look ahead to the future. Perhaps markets got ahead of themselves last week, perhaps not. 

Softer Jobs Data

Softer employment data is what the Fed and markets want to see. It got its dose last week, with October Nonfarm Payrolls coming in at 150,000 vs 170,000 expected.

Major U.S. equity markets cheered the softer jobs number last week and extended their rally on Friday, making it five up days last week in the S&P 500.

United Auto Workers (UAW) auto strikes factored into the data, contributing to a decline in the manufacturing sector. Healthcare, government, social assistance, and construction jobs were areas of strength.

The weaker-than-expected jobs data added some confirmation to last week’s rally on the basis that the Fed’s rate hikes are having the intended consequences of slowing the economy.

The Takeaway

Market sentiment can shift on a dime. That is exactly what happened last week. 

After some tough sledding in October for major U.S. stock indexes, November 1st was a monumental day.

Oversold markets and market sentiment showing a high level of bearishness at the end of October gave way to an optimistic (and widely watched) quarterly treasury refunding on November 1st, followed by a Fed that left rates unchanged and Fed commentary that was perceived by many as dovishAll on the same day.

Is the Fed really done raising rates, and can the market really expect a rate cut in May of 2024? Is that too soon? Employment data showing some softening helps to show some evidence of a slowdown, just what the Fed needs to tame inflation. Markets will look for further evidence of inflation slowing at the next CPI reading on November 14th.


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