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Robust September jobs report supports view the economy is headed for rotation, not recession.

Published October 4 2024

The September nonfarm payroll report blew away all expectations, with the economy adding 254,000 jobs last month versus expectations for a gain of 150,000. The pace of hiring hit a 6-month high, with the prior two months also seeing an upward revision of 72,000 jobs. The unemployment rate ticked down to 4.1%, which should allay market fears about the Sahm Rule.

Along with the stronger-than-expected hiring, wage inflation also ticked higher, coming in at a year-over-year rate of 4.0%—the highest pace in four months—versus expectations of a gain of 3.8%. Given a more hawkish tone from Federal Reserve Chair Jerome Powell in recent days, the jobs report likely pushes the Federal Open Market Committee to issue a 25 basis-point cut at its November policy meeting, a downshift from the 50 basis-point reduction last month. We are seeing in this priced into the futures market, in which odds of the latter move have fallen from 35% to 15%. This is leading to a sharp sell-off in bonds, with the 2-year Treasury yield jumping more than 15 basis points and the benchmark 10-year yield up just over 10 basis points, modestly flattening the yield curve.

Equities are also responding well to the report, with S&P 500 up just above 0.5% at the open, with small-caps outperforming, up nearly 1.5%.

The bottom line is that the September jobs data supports our view that the economy is headed for a rotation, not a recession. While economic growth has undoubtedly slowed, so has inflation, and we do not expect the economy is on the precipice of a more troublesome deceleration. Today’s payroll report should calm concern that U.S. employment is approaching a downward inflection point. That gives credence to our position that the market will rotate into asset classes, such as value cyclicals, dividend payers and—most of all—small caps, which benefit from both lower rates and stable growth.

Tags Markets/Economy . Equity .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Sahm Rule: The Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U-3) rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months.

Yield Curve: Graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

There are no guarantees that dividend-paying stocks will continue to pay dividends. In addition, dividend-paying stocks may not experience the same capital appreciation potential as non-dividend-paying stocks.

Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks.

Stocks are subject to risks and fluctuate in value.

Value stocks tend to have higher dividends and thus have a higher income-related component in their total return than growth stocks. Value stocks also may lag growth stocks in performance at times, particularly in late stages of a market advance.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results. 

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