Investor's Guide to the October Jobs Report | Episode 067 | 11-03-23

Megan Horneman, the Chief Investment Officer at Verdence Capital Advisors, discusses the latest jobs report, a key indicator in the financial world. She goes over the October job figures, which saw 150,000 jobs added and a slight uptick in the unemployment rate to 3.9 percent, and discusses why both stock and bond markets are rallying in response. Megan talks about why the market sometimes interprets "bad news" as a positive sign, indicating the potential pause in interest rate hikes by the Federal Reserve. Megan also focuses on the importance of considering this report as a lagging indicator and explores emerging cracks in the employment market, offering valuable insights for investors.

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets with Megan, and we want to talk about the jobs report that we got this morning. This is the report that comes out the first Friday of every month. It tends to be a market mover. It's something the Fed is looking very closely at when it considers monetary policy as well. So let's dig right into what we got out of the report and then discuss why both stocks and bonds are rallying on this today. First of all, the jobs. We had 150,000 jobs reported that were added in October. It was a little bit weaker than expected, but the prior two months were revised down by about 101,000. The unemployment rate ticked up to 3.9 percent, so we're now up after that low of 3.4 percent. The hourly earnings one of the things the Fed looks at for wage pressures and wage inflation. They actually rose 4.1 percent on a year-to-year basis, so a little bit weaker than it was in the prior month. Now the markets are rallying on this. Why? This is a report where you saw the unemployment rate tick up and job growth slow. The markets are rallying because they're figuring the Fed is going to say that they're done raising interest rates. They'll continue to remain on pause in December as well, and some of that expectation of them hiking is being priced out of the market. So you're seeing yields fall on that and you're seeing stocks rally. Now let's get into what this means. Going forward.

We've talked a lot about how the employment market is a lagging indicator. We are starting to see this weekend. We're starting to see some of those cracks emerging. If you look at something like the work week, typically employers will cut the work week before they actually cut employees. That was weaker as well. If you look at another report that came out today, which is on the ISM services sector, the service sector has really been holding the economy up for quite some time. If you look at the employment component of that, that's drifting lower and almost in what we consider contraction territory. So it was an okay report. Markets are rallying.

Sometimes bad news is good news for the markets because they're expecting that the Fed can come in and save the day. But let's also remember that the Fed made it very clear on Wednesday that cuts are nowhere near. They're even in discussion and most likely this is just the Fed on hold higher rates for longer. So we don't want to buy into some of these major reactions on such big data days. We'll continue to assess all of these economic indicators that we get. We'll be back and give you some more information as we see data that's worth commenting on. If you have any comments or questions, please feel free to reach out to podcast at Verdence dot com. Thank you.