Last Week on Wall Street – October 5th, 2024

S&P 500: +0.22% DOW: +0.09% NASDAQ: +0.08% 10-YR Yield: 3.97%

What Happened?

US markets ended the week on a high note driven by a strong September jobs report, which revealed that 254,000 jobs were added—substantially surpassing expectations of 150,000. This boost in employment reinforced confidence in the strength of the U.S. economy, pushing higher the three major indices. Alongside the positive jobs report, manufacturing data showed that the ISM Manufacturing PMI held steady at 47.2, marking the sixth straight month of contraction in the sector. However, improvements in new orders and a decline in prices paid offered hope for a potential rebound in manufacturing activity. Additionally, the resolution of a major U.S. port strike alleviated concerns over supply chain disruptions, helping ease pressures on the transportation and retail sectors as port operations resumed after a tentative wage agreement.

Market participants now anticipate more modest cuts, with the outlook shifting from 75 basis points to 50 basis points in reductions before the year’s end. Sector-wise, energy performed exceptionally well, with a 6.9% weekly gain due to a surge in oil prices linked to escalating Middle East tensions. Financials (+1.1%) and utilities (+1.1%) also saw gains, while lagging sectors included consumer staples (-1.9%), materials (-1.8%), and real estate (-1.7%), reflecting mixed sentiment across different parts of the economy.

U.S. Job Creation Roared Higher In September As Payrolls Surged By 254,000

Nonfarm payrolls surged by 254,000 in September, up from a revised 159,000 in August and better than the 150,000 Dow Jones consensus forecast.
The unemployment rate fell to 4.1%, down 0.1 percentage point, as the survey of household employment showed an even stronger picture, with a gain of 430,000.

The key takeaway – In September, the U.S. economy added 254,000 jobs, surpassing the forecast of 150,000 and reflecting a healthy labor market. The unemployment rate dropped to 4.1%, and there were significant upward revisions for July and August, reinforcing the strength of job creation. Wage growth also accelerated, with hourly earnings increasing by 0.4% for the month and 4% year-over-year, both exceeding expectations. Key sectors driving this growth included hospitality, healthcare , and government. Full-time positions saw a strong increase, while part-time employment declined.

This strong jobs report has shifted expectations for Federal Reserve policy, with markets now anticipating more gradual interest rate cuts. The strength in the labor market, combined with higher wages, solidifies the Fed’s likely cautious approach to future rate reductions, with traders expecting another 25bps rate cut in November and December.

US Manufacturing Steady In September; Prices Paid Measure Lowest In Nine Months

U.S. manufacturing remained in contraction for the sixth consecutive month in September, with the ISM Manufacturing PMI holding steady at 47.2
New orders improved, rising to 46.1 from 44.6 in August, while prices paid by manufacturers for inputs fell to a nine-month low

The key takeaway – U.S. manufacturing remained weak in September, with the ISM Manufacturing PMI unchanged at 47.2, signaling contraction for the sixth consecutive month. Positive signs included a rise in new orders to 46.1 and a drop in input prices to a nine-month low, suggesting potential for a manufacturing rebound as interest rates fall. Despite PMI staying below 50, other data like factory output shows the sector is holding steady. However, the employment index continued to decline to 43.9, reflecting layoffs and hiring freezes, with an expected 5,000 job loss in September. The Federal Reserve’s recent rate cuts and potential further reductions are expected to support recovery, though risks such as the recent port strike could disrupt supply chains and raise costs.

Port Strike Ends As Workers Agree To Tentative Deal On Wages And Contract Extension

The International Longshoremen’s Association and the United States Maritime Alliance have agreed to a tentative deal on wages.
The two sides have extended their existing contract through Jan. 15 to provide time to negotiate a new contract.
The move ends a strike that had snarled East Coast and Gulf Coast ports since the beginning of the week and threatened U.S. supply of fruits, automobiles, and other goods.

The key takeaway – The U.S. Maritime Alliance and the International Longshoremen’s Association reached a tentative agreement on wages, ending a strike that had disrupted East and Gulf Coast ports. The strike, which lasted four days, had threatened the U.S. supply chain, impacting goods such as fruits and automobiles. The tentative deal includes a 61.5% wage increase over six years for dockworkers and extends their contract until January 15, 2025, allowing more time for negotiations on other unresolved issues, such as port automation.

While the strike has ended, the aftermath will take weeks to unwind as the supply chain was heavily disrupted, with thousands of containers misdirected, causing delays and increased shipping costs. The agreement has been seen as a positive step, with industries expressing relief, though concerns remain about future strikes that could impact U.S. trade and GDP. Further discussions on automation and other technological improvements will be key in the continued negotiations.