Here’s The Asset Guidance Group Outlook for the Week Ahead… 

As is typical following the labor report, this week’s economic calendar is lighter but contains a few impactful events. In the U.S., Tuesday’s midterm elections may set the tone for markets into year end,  especially if the result is a split Congress and gridlock ensues. With the FOMC meeting in the rearview mirror, there will be a flurry of committee member speeches this week to parse. On Thursday, U.S. CPI is expected to accelerate compared to the prior month, as companies pass higher costs on to consumers and core prices continue to rise. The first look at November’s consumer sentiment figures will close the week. Other
announcements of note include consumer credit, small business sentiment, and 10- and 30-year Treasury auctions. In the UK, Friday’s preliminary Q 3 GDP reading is anticipated to show a contraction of -0.5%, but that may understate the economic malaise being felt by British households. The European Commission will release its quarterly economic forecasts, while the region’s retail sales and investor confidence reports along with German industrial production are sprinkled throughout the week. Finally, China’s factory gate inflation is expected to fall for the first time in nearly two years, with headline CPI easing to 2.4% YoY. [1]

International:

Almost all major international markets finished the week in the green.  Canada’s TSX ticked down -0.1%, but the United Kingdom’s FTSE 100 finished up 4.1%.  France’s CAC 40 and Germany’s DAX added 2.3% and 1.6%, respectively, while China’s Shanghai Composite surged 5.3%.  Japan’s Nikkei finished the week up 0.3%.  As grouped by Morgan Stanley Capital International, developed markets added 1.5%, emerging markets rallied 5.6%.

Commodities: 

Major commodities finished the week to the upside as well.  Silver led the way with an 8.6% surge to $20.78 per ounce, while Gold added 1.9% to $1676.60.  West Texas Intermediate crude oil gained 5.4% closing at $92.61 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, finished the week up 7.5%. 

October Summary

The old-line companies comprising the Dow 30 shoved aside the hot youngsters of the NASDAQ in October.  The Dow rallied 14%, the S&P 500 a respectable 8% and the NASDAQ added “just” 3.9%.  Mid caps and small caps finished the month up 10.4% and 10.9%, respectively.  Internationally, Canada added 5.3% in October and the UK rose 2.9%.  France and Germany gained 8.8% and 9.4%, respectively, while China ended the month down -4.3%.  Japan finished October up 6.4%.  Developed markets rallied 5.9%.  Emerging markets fell -2%.  Major commodities were mixed in October with West Texas Intermediate crude rallying 8.8%, Gold retreating -1.9%, and Silver ticked up 0.4%.

U.S. Economic News  

The number of Americans filing for first-time unemployment benefits dipped last week, remaining near pandemic-era lows.  The Labor Department reported that initial jobless claims fell slightly to 217,000.  The reading exceeded economists’ forecast of 220,000 new claims.  The biggest increase in new claims occurred in California and Oregon.  The only states to report a sizable decline in unemployment filings were Florida and Kentucky.  Meanwhile, the number of people already collecting unemployment benefits rose by 47,000 to 1.49 million.  That number remains near a 50-year low.  Analysts note that the low number of claims continues to give the Federal Reserve the green light to continue on its path of raising interest rates.  Nancy Vanden Houten of Oxford Economics wrote, “The job market remains tight, a key reason that the Fed plans to continue to raise interest rates.  We don’t expect a significant rise in claims or unemployment until we enter a recession in 2023.”

The U.S. economy gained a surprisingly strong number of new jobs last month, a sign the nation’s labor market remains strong.  The Bureau of Labor Statistics reported 261,000 new jobs were created, exceeding the consensus of 205,000.  Although the increase was the smallest since April of 2021, it was still strong by historical standards.  Employment rose last month in every major part of the economy.  The health-care industry added 53,000 new jobs to lead the way, followed by professional businesses (43,000), leisure and hospitality (35,000) and manufacturing (32,000).  However, not everyone was pleased by the good news—especially the Federal Reserve.  As Gus Faucher at PNC Financial Services writes, “This actually makes a recession more likely because it means the Fed is going to keep raising interest rates.”  Fed officials worry the tight labor market is driving up wages and making it harder for them to reduce wages to pre-pandemic levels of 2% or so. 

The number of job openings in the U.S. rose again in September, a sign that the scorching hot labor market has yet to cool off.  The Labor Department reported job openings rose to 10.7 million, an increase of 400,000 from August.  Analysts look at the number of job openings as a way to assess the strength of the labor market and the broader economy.  Although companies still list a high number of open jobs, the total has fallen off from a record 11.9 million in March.  The high number of available openings is leading to higher wages and contributing to already high inflation, analysts say.  Katherine Judge, economist at CIBC Economics wrote in a note,” The Fed is looking for a more persistent cooling in order to add some slack to the labor market, and this is a step in the wrong direction.”  Meanwhile, the number of people who quit their job dipped slightly to 4.1 million—which is still unusually high.  Quits have topped 4 million for 15 months in a row.  Analysts look at the “quits rate” for the underlying strength in the labor market.  It’s presumed that one would only quit a job in favor of a more lucrative one. 

The Federal Reserve hiked interest rates for a fourth consecutive time and signaled rates were likely to go higher than previously forecast.  In a widely expected move, the Federal Reserve hiked its key interest rate by 0.75% to a range of 3.75-4%–its highest level in 15 years.  Furthermore, in its statement the Fed said it expects to continue with further rate hikes “until they are sufficiently restrictive”.  The Fed also said it will “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”  While the market initially rallied on the announcement, it sold off when Powell said the central bank’s benchmark rate was likely to end up “higher than previously expected.”  The Fed’s last forecast estimated its benchmark rate would top out in a range of 4.5%-4.75%.  Powell said the window to achieve a “soft landing” is narrowing.  A sizable number of economists are calling for a recession next year.

Manufacturing activity across the nation held steady in October, according to a pair of reports released this week.  The Institute for Supply Management (ISM) reported its measure of U.S. manufacturing activity fell 0.7 points to 50.2, slightly exceeding the consensus of a drop to 50.0.  It was the lowest reading since May 2020, shortly after the pandemic took hold.  In the report, the index for new orders remained in contraction at 47.1, while the production index rose 1.7 points to 52.3.  Of note, the price index dropped 5.1 points to 46.6—also the lowest reading since the pandemic.  ISM noted “pricing power is shifting back to the buyer” in its summary. 

In a separate report, S&P Global reported its index of U.S. manufacturing ticked up to 50.4 in October, but this is down from 52 in September.  Timothy Fiore, chair of the ISM factory business survey stated manufacturing is slowing down and could soon enter contraction territory, but that doesn’t mean there will be a recession in the U.S.  “I don’t see a collapse of new orders.  I don’t see a collapse of the PMI,” Fiore said.  However, some economists aren’t as optimistic.  Oren Klachkin, economist at Oxford Economics wrote in a note, “Recession jitters among manufacturers won’t disappear any time soon…manufacturing will endure more pain as demand weakens at home and abroad while prices stay high and interest rates remain fairly elevated.” [2]

Random Thought/Image of the Week

A series of TV ads from the Indeed job-posting site feature the memorable tag line “Indeed you do!”  When applied to jobs in the Tech sector, that line might be “Indeed, you don’t!”  Published data by Indeed’s “Hiring Lab” shows just how much job openings in the tech sector have shrunk this year.  (Chart from Indeed’s “Hiring Lab”) Click Here to View Chart. [3]

Structured Note Values

1. Lower of GDX/GDXJ; GDX Pricing Value: 4/29/22: 34.99, Current: 24.95; Delta -28.69%; GDXJ Pricing Value 4/29/22: 42.95, Current: 31.24 Delta -27.26%
2. Lower of GDX/GDXJ; GDX Pricing Value: 5/26/22: 32.39, Current: 24.95 Delta -28.69%; GDXJ Pricing Value 5/26/22: 39.67, Current: 31.24, Delta -21.25%
3. ARKK Pricing Value 7/15/22: 44.11, Current: 35.22, Delta -20.15%
4. SPX Pricing Value 7/18/22: 3863.16, Current 3770.55, Delta -2.40%
5. RTY Pricing Value 7/18/22: 1744.37, Current: 1799., Delta +3.18%
6. NDX Pricing Value 7/18/22: 11,452.42, Current: 10,475.25, Delta -8.53% [4]

Chart of the Week: 

Last week brought some relief to skyrocketing interest rates. The 30-Year Treasury Index (TYX) broke above important technical resistance at 40 (4.0% yield) two weeks ago, which was also the high print from the prior 10 years. Last week a small retracement dropped the rate from 4.4%
back to 4.1%, which is larger than it sounds. Long-term rates are still above the
important 4.0% mark, so will the new potential support hold, or does the correction continue? Click here to view chart [5]

Sources: [1] tdainstitutional.com; [2] [3] [4] Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab; [5] tdainstitutional.com; 

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