It would seem that good data from the US labor market could be a reason for satisfaction, optimism and calming down the already nervous situation on the financial markets. However, this did not happen after Friday's publication, where the stock indices plunged.
Good data from the labor market and falls in the US stock market US stock
Futures extended losses on Monday, after stronger- than expected US employment data could cause an escape from the stock market. At the end of the US session on Friday, the Dow Jones fell by 2.11 percent, the S&P 500 by 2.8 percent and the Nasdaq Composite by 3.8 percent. Total non-farm payroll employment rose 263,000 in September, the U.S. Department of Labor reported on Friday. This figure was a slight decrease compared to the previous month's increase of 315,000, but it exceeded market expectations. The unemployment rate fell by 0.2 percentage points compared to August and returned to the July reading of 3.5%. The professional activity rate was 62.3%. The leisure and hospitality sector recorded the largest number of new jobs in September (83,000), followed by healthcare (60,000) and professional and business services (46,000), according to BLS data compiled by BBN.
Source: Conotoxia MT5, US500, M30
Good data is bad data?
The market seems to be returning to the conclusion that good data from the economy may be bad for the financial markets, as it may mean higher interest rates. In an environment where inflation is at its highest in decades and the labor market is strong, the Fed may not have any brakes on these rate hikes. The market is estimating that at the beginning of November the Federal Reserve may decide on another hike by 75 bp. For Wall Street institutions, this could mean a higher cost of capital and could also lead to further deleveraging. Additionally, the valuation of US equities at 16x (forward P / E for the S & P500) seems to be high with the expectation that the US dollar may bear interest at nearly 5%. in a quarter. Additionally, investments in stocks may not be encouraged by the high level of the VIX fear index, which is in the region of 30 points. To sum up, investors in the stock market may receive increasingly expensive financing at higher risk, while at the same time competition in the form of bonds or even deposits in US dollars could literally grow from the meeting to the Fed meeting.
What awaits US stock markets this week?
This week, in turn, there may be some important data on inflation in the United States. They may also affect the market expectations as to the strength and scale of possible further interest rate hikes in the US. The data will be released on Thursday 10/13/2022 at 2:30 PM GMT + 2.
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Daniel Kostecki, director of the Polish branch of Conotoxia Ltd. (Cinkciarz.pl investment service)
The above commercial publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of April 16, 2014. It has been prepared for information purposes and should not constitute the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this publication. Copying or reproducing this work without the written consent of Conotoxia Ltd. is prohibited.
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