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Market Extra: Here’s how stock-market investors are reading a still strong U.S. September jobs report


Stock markets have been volatile so far in October, with a rally earlier this week suggesting investors once again bet the Federal Reserve will become less aggressive with its interest rate hiking plans at the its November meeting.

However, that hope has been dented after a still-strong September jobs report on Friday suggested the central bank would not alter the course of monetary policy soon. 

U.S. stocks traded sharply lower on Friday with the Dow Jones Industrial Average

shedding nearly 600 points, or 2%, while the S&P 500

was off 2.6% and the Nasdaq Composite

dropped by 3.6%.

The economy added 263,000 new jobs in September, the Labor Department said Friday, slightly lower than expectations of 275,000 jobs from a survey of economists polled by Dow Jones, and well below the 315,000 new positions added in August. The gain was largely due to more jobs in leisure and hospitality and in health care.

“The payroll growth is still way above what is consistent with a trend economy – a trend economic growth would be something like 125,000 jobs a month,” said Brad Conger, deputy chief investment officer at Hirtle, Callaghan & Co. “Maybe the direction is good, but it’s a long way from the objective.”

The unemployment rate, meanwhile, dropped to 3.5% from 3.7% a month earlier, the government said Friday. That puts it back at a pre-pandemic low and marks one of the lowest rates in a half-century. 

See:‘Labor market is too hot for the Fed’: Economists react to September jobs report

In the closely watched wage numbers, hourly pay rose 10 cents in September to $32.46. The rise in pay over the past year slowed to 5% from 5.2%, but it is still one of the fastest increases since the early 1980s.

“The average hourly earnings are not dampening, so people are getting jobs and people who have jobs are getting higher pay — that pay increase is not consistent with the 2% inflation rate,” Conger told MarketWatch via phone on Friday. “The workforce is not responding to the incentive of higher income, (which means) we are not drawing people into the workforce.” 

The labor force participation rate, which measures those ages 16 to 64 who are working or looking for work, was little changed at 62.3% in September, while the employment-population ratio was unchanged at 60.1%. 

See: Fed may need to pivot by early November, when ‘something breaks,’ says Guggenheim’s Scott Minerd

Analysts think the labor market hasn’t deteriorated enough to impact the Fed’s calculus on interest rates, and the report may indicate the need for a higher Fed funds rate ultimately. “It does encourage people to think that 4.6% may not come down to the duration of the plateau or duration of the peak,” said Conger. 

The central bank wrote in its median forecast released after its FOMC meeting last month that it will raise interest rates as high as 4.6% in 2023 before policymakers stop their fight against soaring inflation. 

“The Fed’s medicine seems to be working and I think they’re gonna keep the dosage the same,” said Robert Conzo, chief executive officer at the Wealth Alliance. “I believe that the Fed is gonna take this report, and it probably is not showing any real trend either way.”

On Thursday, Minneapolis Fed President Neel Kashkari said it’s too early for the central bank to think about a pause in interest-rate hikes because there’s little sign that inflation has peaked. Meanwhile, new Fed governor Lisa Cook said that inflation remains “stubbornly and unacceptably high,” which “will require ongoing rate hikes and then keeping policy restrictive for some time.”

Earlier this week, job openings in the U.S. fell sharply in August to a 13-month low of 10.1 million, the Labor Department said on Tuesday, a sign the red-hot labor market might be cooling off a bit as high inflation and rapidly rising interest rates start to rattle the economy. Meanwhile, the number of people who applied for unemployment benefits last week jumped by 29,000 to a five-week high of 219,000.

Trading across other financial markets was choppy after the release of the data was published Friday morning. Two, 10- and 30-year Treasury yields moved higher on Friday. The yield on the 2-year Treasury

rose to 4.302% from 4.247% on Thursday. The yield on the 10-year Treasury

advanced to 3.863%.

See: Bond markets facing historic losses grow anxious of Fed that ‘isn’t blinking yet’

Gold prices for December delivery

fell $10.20, or 0.6%, to $1,710 per ounce on Comex. The ICE U.S. Dollar Index
a gauge of the dollar’s strength against a basket of rival currencies, rose 0.1%. 

For the week, the S&P 500 is up 2.2%, the Dow up 2.5% and the Nasdaq booked a 1.5% weekly gain, according to Dow Jones Market Data.

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