Stocks Fall Sharply on Strong Jobs Report; Bonds Mixed

Good morning,

The Dow (-1.9%), NASDAQ (-2.7%), and S&P 500 (-1.9%) each fell sharply last week.  Meanwhile, bonds were mixed as taxable bonds gained 0.5% and tax-free municipal bonds fell 0.1%.  The 10-year Treasury yield fell 0.09% to finish the week at 4.06%.

The two main drivers of the markets in the past two weeks have been the sell-off in risk assets, mostly depicted by the AI stocks, and the debate over whether the Fed will cut interest rates at its next meeting in December.  The world’s largest company by market cap and the darling of the stock market the past two years has been chip maker Nvidia.  Nvidia reported strong earnings last week that temporarily vaulted the market up, as their earnings helped squash investors’ concerns that the AI stocks could provide strong earnings.  Well, Nvidia proved they can still do it, as their earnings exceeded investor expectations.

However, the (delayed) September jobs report showed that the number of new jobs in September surpassed economists’ expectations, causing markets to fall sharply immediately after.  While that seems counter intuitive (good news is bad news), it was met with immediate selling, as investors were concerned that this labor report would be viewed by the Fed as a reason to NOT cut interest rates next month.  This was confirmed as the Fed meeting minutes were also released last week, and several members believed the Fed should hold rates steady and not cut them in December.  Due to the government shutdown, much of the economic data has been delayed, so uncertainty regarding the Fed rate cut decision will likely remain, causing increased market volatility for the next few weeks.  Lastly, we will soon have a much better idea of how the consumer is faring as the holiday shopping season soon kicks off in full swing. We also encourage you to review the attachment prepared by Cornerstone Portfolio Research, as it provides great charts regarding employment data over the past few years.

Have a great day and week, and Happy Thanksgiving to you and your families.  Please note that Menninger & Associates will be closed for the holiday and we will be out of the office on Friday but will be monitoring the phones and e-mail throughout the day. 

^{Source:  Yahoo Finance}

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^{The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.}