The markets faced a mix of uncertainty and optimism last week, with traders digesting a wave of economic news and geopolitical developments. Tensions in the Middle East continued to weigh on sentiment, particularly in energy markets, while concerns over persistent inflation and rising interest rates remained at the top of mind. However, better-than-expected earnings from several major corporations provided some relief, helping lift major U.S. indices by the week’s close. The S&P 500 and NASDAQ posted gains, supported by strong performances in tech and consumer discretionary sectors. The Dow also finished higher, while the Russell 2000 and the Global Dow slipped. Energy stocks rose sharply, driven by a 6.3% jump in oil prices amid supply disruptions. The communication services and consumer discretionary sectors also saw notable increases. However, utilities and real estate posted losses, reflecting the impact of rising bond yields. The yield on the 10-year Treasury note climbed to its highest level in over two months, fueled by inflationary pressures and shifting expectations regarding Federal Reserve policy.
Last Week’s Economic News
- U.S. employment remains solid. The Labor Department reported that the economy added 263,000 jobs in September, surpassing expectations and continuing a trend of robust job growth. The unemployment rate held steady at 3.8%, and wage growth accelerated slightly, rising by 0.3% month over month.
- Producer prices increased more than anticipated in September, climbing by 0.5%, primarily due to rising energy costs. Over the past year, producer prices have risen by 2.7%, reflecting ongoing inflationary pressures in key sectors.
- The U.S. manufacturing sector remained in contraction last month, according to the Institute for Supply Management’s Purchasing Managers’ Index (PMI). However, there were some signs of stabilization, with new orders and production showing modest improvement.
- The preliminary reading of the University of Michigan’s Consumer Sentiment Index for October fell to 63.2, as consumers grew more pessimistic about inflation and rising borrowing costs.
- The national average retail price for regular gasoline was $3.35 per gallon as of October 7, up from $3.18 the previous week, driven by higher crude oil prices.
- Initial claims for unemployment insurance rose slightly for the week ending October 5, totaling 230,000, an increase of 5,000 from the prior week.
Eye on the Week Ahead
Key economic reports due this week include the September Consumer Price Index (CPI), which will give a clearer picture of inflationary trends. Economists expect the CPI to show an increase of 0.3% for the month, which would bring the year-over-year inflation rate to 2.6%. In addition, retail sales data for September will offer insights into consumer spending patterns amid rising costs. Traders will also closely watch the ongoing earnings season for further indications of corporate health and the broader economic outlook.
Have a nice week!
Sincerely,
Robert G. Carpenter