In September, the US economy added 254,000 jobs, which is a lot more than the 147,000 jobs that experts thought would be added. The unemployment rate went down to 4.1%, which is better than the expected 4.2%. This is the first time since May 2024 that job numbers have been better than expected. Also, the job numbers for August were changed from 142,000 to 159,000.
This jobs report shows a stronger economy and caused interest rates to go up. Here are the main points from the September jobs report:
Jobs Added: 254,000 (expected: 150,000)
Unemployment Rate: 4.1% (expected: 4.2%)
Average Hourly Pay (Yearly Change): 4% (expected: 3.8%)
Average Hourly Pay (Monthly Change): 0.4% (expected: 0.3%)
After this report, the yield on the 10-year Treasury note went up toward 4.00%. Overall, the economy added 107,000 more jobs than expected last month, and the August job numbers were also revised up by 17,000.
Another factor contributing to market volatility has emerged, as the likelihood of a 50 basis point rate cut in November is declining once again. As a result, traders are scaling back their expectations for a Fed rate cut that exceeds 25 basis points.
FedWatch: Traders are adjusting their expectations for rate cuts after the jobs report. The likelihood of a 25bps cut in November rose to 92.4% following the NFP data. The Fed Funds futures curve now anticipates about 150bps of cuts over the next year, down from 200bps the previous week.
Bank of America says that economic data has been very strong since the Federal Reserve’s 0.5% interest rate cut in September, so another big cut of the same size isn’t necessary. They now expect the Fed to reduce rates by 0.25% at each meeting until March 2025, and then by 0.25% per quarter through the end of 2025. This leads them to raise their forecast for the final interest rate to 3.0-3.25%. However, there could be higher rates if productivity continues to improve.
David Kelly, JPMorgan Asset Management’s Chief Global Strategist, has warned investors about growing distortions in the market. Even though recent strong economic data and major interest rate cuts by the Federal Reserve have made investors optimistic, Kelly suggests being careful about taking on more risks.
He points out that many investors are turning to riskier assets, hoping for a soft landing in the economy, which might not be the best decision right now. While this trend appears beneficial for U.S. stocks, Kelly is uneasy about how the market is still pricing in a soft landing scenario. He believes that as market valuations go up, the chances of a market shock increase, which could lead to significant drops in asset prices.
Kelly stresses that the market has risen and become more distorted as valuations have increased, raising potential risks for investors.
Update
Goldman Sachs has released a new research report, increasing its 12-month target for the S&P 500 to 6,300 from 6,000. This change is due to a rise in their earnings per share (EPS) forecast for the S&P 500 in 2025, which is now expected to be US$268 instead of US$256. They have also introduced a new EPS estimate for 2026 at US$288.
For 2024, Goldman Sachs expects the S&P 500 price-to-earnings (PE) ratio to be 22 times. They have kept their EPS forecast for 2024 the same at US$241. Additionally, they have raised their target for the S&P 500 at the end of the year to 6,000, up from 5,600.
Corporate insiders have bought the least amount of shares in a decade. In July, only 15.7% of U.S. companies reported net buying by insiders, the lowest level in 10 years. This rose to 25.7% in August but fell to 21.9% in September, below the 10-year average of 26.3%.
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