Equities bounced around the flat line for most of the day to finish slightly lower Friday – a quiet day compared with sizable daily swings seen recently.
A disappointing September employment report was the headliner, with jobs data getting weighed against the implications for upcoming Fed policy.
The net result was a lack of conviction in one direction or another for equity markets today.
Nevertheless, stocks posted a solid gain for the week, as a temporary debt ceiling deal and improving investor sentiment spurred a bounce off the recent 5 percent pullback.
Global markets were mixed Friday but held on to weekly gains as well.
Oil prices logged their seventh consecutive weekly gain, touching the highest levels since 2014.
Meanwhile, 10-year Treasury yields continued their move higher, reaching 1.60 percent as inflation pressures and upcoming Fed bond-purchase reductions have lifted rates.
Friday’s employment report showed that the economy added 194,000 jobs in September, well below the consensus expectation of 500,000.
Private payrolls rose by 317,000, while government employment declined by more than 100,000 jobs.
Despite the modest job growth, the unemployment rate fell to 4.8 percent.
This was a disappointing number, but in our view it reflects more seasonal (decline in government education jobs) and temporary (impacts of the delta variant wave) factors, and does not signal an economy that is running out of steam.
We think the labor market will see renewed momentum as we turn the corner in 2022, supporting an enduring expansion.
For the markets, this payroll report will likely spur some uncertainty around the upcoming Fed response. Expectations are for the Fed to begin tapering bond purchases as early as next month, though this soft patch in job growth may raise calls for the Fed to push back the timeline for reducing stimulus.
Senate lawmakers reached a deal to raise the debt ceiling by $480 billion, which will extend government funding until early December.
This averts the imminent threat of default, but this is a delay, not a fix. We suspect similar brinkmanship will play out in late-November as the new debt ceiling limit is approached, though we think the outcome will be consistent with these instances in the past - after political posturing, policymakers will ultimately raise the debt ceiling to avoid a government default.
This temporary window will shift attention to an infrastructure bill along with the broader government-spending program.
The latter began with a proposal near $3.5 trillion, but we believe negotiations may bring that down closer to the $2 trillion in order to gain broader support.