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bond yields and the economy

Surprising September Job Report Sends Shockwaves Through Markets

news Oct 06, 2023


In a stunning turn of events, the markets are in turmoil following an unexpectedly robust jobs report. Investors had anticipated a weaker report to quell the soaring 10-year bond yields. Contrary to expectations, the opposite has occurred. Let's delve into the details.

What Happened:

According to the U.S. Department of Labor, the economy saw a remarkable addition of 336,000 jobs in September, nearly double the initial estimate of 170,000.

This development stands in stark contrast to the preceding Wednesday when ADP reported job growth at less than half the expected rate. The market is currently experiencing a highly volatile response to these developments.

Current Market Status:

The market has been grappling with a surge in 10-year treasury bond yields, causing considerable distress among investors. The belief in sustained high-interest rates for an extended period has propelled long-term bonds to new heights, siphoning momentum from traditional stock investments. Additionally, one of the Federal Reserve's primary objectives is to regulate job growth. As a result, investors have reacted strongly to the 336,000 job figure, perhaps with undue concern.

However, it's essential to note a crucial factor in these job statistics: wage growth. Analysts had anticipated a 0.3% increase in wages for the month, but the actual rise was only 0.2%. While job growth is surging, wage growth appears to be decelerating.

It's important to understand that the number of jobs alone does not drive inflation; rather, it's the circulation of money within the economy. A growing number of individuals are accepting lower-paying positions in the service and government sectors, which might be contributing to the market's cautious stance.

Why it Matters:

We are entering a turbulent period for the stock market. After a decade of near-zero interest rates, bonds have emerged as strong competitors to equities. Utility stocks have suffered as their dividends and risk profiles struggle to compete with 10-year bond yields, now approaching 5%.

Although a stock market downturn like this does not immediately trigger a recession, it has the potential to restrict the growth prospects of numerous companies, potentially slowing down the overall economy. This morning, the DJI exhibited considerable volatility, while the U.S. 10-year yield surged by nearly 3%.