Stocks closed mixed yesterday with Dow in the red, while the S&P and Nasdaq finished in the green.

In spite of last week's Personal Consumption Expenditures (PCE) index, which showed core inflation continuing to ease, bond yields continue to rise.

Even though the Fed is only forecasting one more possible rate hike this year, which would put the Fed Funds rate at a midpoint of 5.6%, some are speculating that the Fed could be forced to raise rates even higher if inflation remains as sticky as it's been, or if it starts going back up. While last week's PCE report indeed showed the core inflation rate coming down, the headline rate (which includes food & energy) ticked up.

Last week's comments by Jamie Dimon when he mentioned the prospect of 7% interest rates while talking at the JPMorgan investor summit in Mumbai, India spooked both stocks and bond markets last week (and apparently this week so far too). He characterized his comments as a worst case scenario if inflation keeps going up. Nonetheless, the worry over even higher rates is real, as demonstrated by the higher treasury yields.

But the Fed still thinks only one more rate hike at the moment. And then they expect to begin cutting rates in 2024 and continuing to cut in 2025.

The weekend agreement by Congress on a short-term budget extension (until November 17) to fund the government, averted a feared shutdown. But it was not a long-term solution. And by kicking the can down the road, they will be right back in the same position in roughly 45 days. Let's hope they use this time wisely and get this figured out without waiting until the last minute again, as is all too common. The market doesn't need the unnecessary drama.

In other news, yesterday's PMI Manufacturing report rose to 49.8 vs. last month's 48.9.

The ISM Manufacturing Index rose as well, coming in at 49.0 vs. last month's 47.6 and views for 47.8.

And Construction Spending was up 0.5% m/m, in line with the consensus. On a y/y rate it was up 7.4% vs. last month's pace of 5.6%.

Today we'll get the Job Openings and Labor Turnover Survey report (or JOLTS for short).

But the jobs report everybody is really waiting for is Friday's Employment Situation report. Last month's report showed more jobs were created than expected, but that job growth cooled from its record setting pace, while hourly wage growth rose less than expected.

Robust job growth is wanted, but not rip-roaring job growth as that signals the increase in interest rates is not having as much of an effect at slowing the economy down (and thus inflation) as expected. So a solid number should be cheered on Friday, but not a blowout one.

Monday's market performance put in a less than auspicious start to Q4. But it was good enough.

And that doesn't change the odds of a Q4 rally. That's because history shows if the market is up more than 10% thru July (which it was), and August is down (which it also was), the remainder of the year is up 100% of the time with an average gain of 9.9% (median of 8.7%).

So if the market is going to match its historical average (or median) listed above, it will need to climb roughly 5% just to get back to where it was at the end of August. And then add another nearly 9% to 10% on top of that.

If so, that suggests a big rally in Q4.

See you tomorrow,