There’s a lack of market-moving economic news this week, but that doesn’t mean Wall Street and the economy can be quiet.
The political news is heating up as Donald Trump is set to testify in his civil fraud trial in New York. The former president and front-runner for the GOP nomination will be absent when the party’s rivals meet for another debate in Miami on Wednesday. And there are elections across the country on Tuesday that could show where the country stands politically a year after the 2024 election.
Geopolitics remains a quandary as Israel rejects calls for a ceasefire in its war with Hamas for now, while Secretary of State Anthony Blinken visited the West Bank, Iraq and Turkey over the weekend and Monday to seek regional help to maintain the situation that has been going on for months ongoing conflict cannot escalate into a regional war.
And then there’s the market itself. After last week’s Federal Reserve meeting and the decision to keep interest rates unchanged, stocks rallied, capping off the best week for the three major indexes since the end of 2022. Bond yields fell strong as traders digested the likelihood that the Fed will end its campaign of raising interest rates to curb inflation. Mortgage rates fell 0.29% to an average of 7.92% for a 30-year fixed-rate loan.
Meanwhile, a weaker-than-expected jobs report on Friday had some analysts suggesting the economy was heading for a downturn.
“Job gains slowed to 150,000, well below the year-to-date average of about 260,000, and the previous two months’ numbers were revised downward by a total of 162,000,” said Julia Pollak, chief economist at ZipRecruiter. “Working hours fell to 34.3, the low end of the range we typically see in good economic times.”
Political cartoons about the economy
“Increasing financial burdens coupled with declining employee debt are taking their toll,” Pollak said. “Last month’s decline in real disposable income suggests that consumer spending could cool further in the coming months, putting even more downward pressure on the labor market.”
However, she added: “The good news is that this slowdown is not due to economic fundamentals, but rather due to careful orchestration by the Fed. If it turns out that the Fed and bond markets have gone too far, the Fed holds the key to reversal.”
Chris Rupkey, chief economist at FWDBonds, said that while the labor market remains strong by historical standards, the underlying data in the Bureau of Labor Statistics report signaled a warning.
“The unemployment rate rose only a tenth to 3.9% in October from September, which was little changed, according to the BLS,” he said. “But the low point in unemployment was 3.4% in April of this year, and every recession since the 1970s has been triggered by a five-tenths increase in the unemployment rate… with only one error.”
Markets will have a chance to decipher current Fed policy this week when several senior officials are scheduled to speak. Powell is scheduled to give opening statements and a speech at two conferences in Washington. At his news conference following the interest rate decision, Powell praised financial markets for doing some of the central bank’s work for him last week, and he said Fed staff still did not include a recession in their economic forecasts had taken into account, but added that there was no talk of interest rate cuts.
“I think what we can say is that financial conditions have tightened significantly, and you can see that in the interest rates that consumers, households and businesses are paying now. And that will play out over time,” Powell said . “We just don’t know how persistent it will be. And it’s hard to try to translate that so that I can easily say how many rate increases that is.”
And that could well be why a lull in the economic news is exactly what markets need to determine how the rest of the year and 2024 unfold.
“The question going forward, however, is whether this slowdown will be benign – a soft landing for the economy – or whether it will mark the start of a more significant deterioration that evolves into a recession,” BCA Research said in a note to clients on Monday morning. “In the short term, investors may not be able to distinguish between these two outcomes, meaning investors should not rule out the possibility of a near-term stock rally.”
Stock futures were flat in early trading Monday, digesting weekend news that Berkshire Hathaway’s earnings for the latest quarter were $10.761 billion. That’s 40.6% more than the $7.651 billion earned in the year-ago quarter. The Omaha-based conglomerate, led by legendary investor Warren Buffett and including holdings from most sectors of the economy, also said it had a record $157 billion in cash on hand. Buffett has been buying short-term government bonds lately.