What’s in a Number?

Oct 9, 2023

By Pete Biebel, Senior Vice President, Senior Investment Strategist
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The employment numbers last Friday morning really did a number on the markets. That morning, the U.S. Bureau of Labor Statistics (BLS) reported that nonfarm payrolls increased by a whopping 336,000 jobs in the month of September. That number was roughly double the increase that had been expected. Compounding the number’s impact, the BLS also announced significant upward revisions to the size of the payrolls increases in the previous two months, bumping up its August estimate by 40,000 and its July estimate by 79,000. The magnitude of the employment gains shocked the markets. Stock index futures were quickly lower by 1% to 2%, and the yield on 10-year U.S. Treasury notes spiked to 4.85%. To understand what happened next, we need to crunch the numbers on market activity through the first four days of last week.

The steep increase in longer-term interest rates that we suffered through in September continued as October began. The yield on 10-year Treasuries jumped from 4.57% to 4.80% over just the first two days last week. Higher rates continued to weigh on stocks. The S&P 500 Index (SPX) and the NASDAQ Composite Index (COMP) were lower by 1% to 1.5% through those first two sessions. The Russell 2000 Index of small-cap stocks (RUT) lost more than 3% over that stretch. Where COMP was able to hold just above its low of the prior week, SPX fell to a lower low, trading down to about 4216 Tuesday afternoon. That was the index’s lowest print since it blasted above the 4200 level in early June. RUT hit its lowest level since early May. Both RUT and the Dow Jones Industrial Average (DJIA) had dropped below their December 31, 2022 closing levels.

SPX and RUT were both statistically oversold at Tuesday’s close. While the indices tried to rebound through Wednesday and Thursday, SPX revisited its Tuesday low both days; RUT traded below its Tuesday low both days. Despite the modest recoveries, DJIA, RUT and SPX were all still in the red for the week as of Thursday’s close.

The BLS data was reported an hour before the stock market opening on Friday. The surprisingly strong employment numbers initially roiled the markets. Stock index futures and bonds sold off immediately and remained sharply lower into the market opening. The prevailing theory was that the report would increase the likelihood of another interest rate hike by the U.S. Federal Reserve (Fed). In the fed funds futures market, the odds of a November hike jumped from 20% to 32%. Stock indices opened sharply lower and remained deep in the red through the first hour of trading.

Around mid-morning, yields began to give back some of their early spike. Contemporaneously, stocks began to recover some of their early losses. Both of those trends not only continued into midday but also accelerated. Keep in mind that stocks had been skidding steeply lower for several weeks. SPX, which had already held just above the 4200 level on three occasions earlier in the week, did so again Friday morning. The apparent change in mood was not so much because the “good news is bad news” sentiment swung to “good news is good news,” but rather because it was more driven by short covering in an oversold market. As I wrote two weeks ago in “This Might Hurt a Bit,” “…heightened volatility should also be expected. And that volatility will likely be in both directions, with steep ‘rally through the vacuum’ rebounds following air-pocket markdowns.”

The Friday reversal and rally lifted COMP (+1.60%) and SPX (+0.48%) to small net gains for the week. Not so for DJIA; it recovered to a loss of just 0.30% on the week, but the narrower loss enabled the index to get back into the plus column year to date. RUT lost a bit more than 2% last week and is now down a bit more than 1% year to date.

The makeup of the late week moonshot was reminiscent of the rally into the Labor Day weekend. As was the case then, it was the sectors that are dominated by the mega-cap tech stocks that led the market higher. Technology (+2.62%) and Communication Services (+2.04%) had the best weeks by a wide margin. Investors seemed far more willing to put their money into companies with increasing cash flow and strong balance sheets; in other words, companies that are not only immune to, but which might also benefit in a higher-for-longer interest-rate environment. Only one of the other nine sectors had a net gain for the week as Healthcare was up a tick less than 1%.

Among the losers were two interest-rate sensitive sectors: Real Estate (-1.50%) and Utilities (-2.85%). Those two sectors are the weakest of the U.S. equity sectors over the past five weeks. Both are down between 8% and 10% during that stretch. Faring more poorly was the Consumer Staples sector, -3.11%. More on that in a minute. Weaker crude oil prices contributed to the Energy sector being the biggest loser, -5.16%. With eight of the 11 sectors in the red for the week, and with the big loss in RUT, I was still surprised to see that the number of losing issues on the NYSE last week was about three times the number of gainers.

The Consumer Staples sector has lost 7.6% over the past five weeks and is down about 12.5% from its late-July high, and this is supposed to be a defensive sector. Companies including Coca-Cola, Colgate-Palmolive and Kraft-Heinz have seen their stocks fall to 2½-year lows. Dollar General is at its lowest level in nearly five years. Many other stocks in the sector have similar losses. The problem seems to come under the heading, “Please Don’t Squeeze the Shopper.”  Consumers have been squeezed by inflation and high interest rates. And many consumers will now have to resume paying off student loans. More recently, a new squeeze has emerged in the form of weight-loss drugs. Many analysts have worried that the availability of such drugs would lead to reduced consumption of snacks and soft drinks.

SPX ended the week a bit below 4309. With a little follow-through on Friday’s big rally, climbing into the 4350–4400 range is conceivable but probably not much more than that. The key in the next week or two should be whether SPX falls back into the mid-to-low 4200s.

The pace of number crunching will get a little busier this week with the beginning of the third-quarter earnings season. A trickle of reports are due this week with the flow turning into a torrent in subsequent weeks. Overall earnings are expected to show a slight decline year-over-year, but bigger declines were expected in the first two quarters, and actual earnings in both quarters came in a bit better than expected. This week’s calendar of economic reports features the Producer Price Index (PPI) and Consumer Price Index (CPI) updates.

Economic Calendar (10/09/23 – 10/13/23)



Monday 10/9/2023 Columbus Day/Indigenous Peoples Day – Bond Market Closed

Tuesday 10/10/2023 NFIB Small Business Optimism Index, September



Wednesday 10/11/2023 Producer Price Index, September, M/M



PPI ex-Food & Energy, September, M/M



PPI ex-Food & Energy, September, Y/Y



FOMC Meeting Minutes

Thursday 10/12/2023 Initial Jobless Claims



Consumer Price Index, September, M/M



CPI ex-Food & Energy, September, M/M



CPI ex-Food & Energy, September, Y/Y



Friday 10/13/2023 Import Prices, September, M/M



Export Prices, September, M/M



Consumer Sentiment, October