Q4 Off To A Good Start, Nasdaq Up For The Week Last Week, At New All-Time Highs
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Stocks closed higher on Friday, led by the Nasdaq with 1.19%. The Nasdaq also closed higher for the week, making it 3 up-weeks in a row.
Friday's Employment Situation Report was viewed bullishly by the market.
The headline number showed 29,000 jobs were created for the month of September (46,000 in the private sector and -17,000 in the public sector), vs. the consensus for 85,000 (75,000 private and 10,000 public). The Unemployment Rate ticked up to 4.2% vs. last month's 4.1% and views for the same.
The weaker-than-expected reading was cheered because it dampened expectations for another rate hike when the Fed meets later this month (10/27-28).
But make no mistake, it was a fine report. Not too hot and not too cold. While public sector jobs contracted by another -17K (continuing the shrinking of the Federal workforce, which is down by roughly -10% over the last 2 years), the private sector grew by 46,000. And that was more than enough to meet and exceed the estimated 15,000 jobs needed per month to maintain full employment at these levels.
The biggest job gains came from the following sectors: Health Care added 17,000 new jobs; Construction jobs were up by 11,000; and Manufacturing gained 9,000 new jobs.
The bullish jobs report comes on the heels of the better-than-expected PCE inflation report from Wednesday. The Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge) showed the headline rate at 3.4% y/y, in line with last month's downwardly revised 3.4% (from 3.7%), and below estimates for 3.7%, while the core rate (ex-food & energy) came in at 3.0% vs. last month's downwardly revised 3.0% (from 3.3%), and the consensus for 3.3%.
Both reports last week (jobs and inflation) have given the Fed the opportunity to pause on rates when they next meet.
In fact, the CME's FedWatch tool has shown a dramatic fall in the likelihood of a rate hike later this month. No more than a couple of weeks ago, the probabilities for another rate increase were at nearly 70%. But now they've dropped all the way down to 22.1%. Meaning the odds (77.9%) strongly favor no hike at the next meeting.
This week we'll get the usual docket of economic reports.
The main release investors will be watching is the Fed Minutes from last month's FOMC meeting. I am not expecting any surprises. But it could provide some additional insight into policymakers' decisions. But given the unanimous vote to raise last month, and the distribution of the quarterly SEP (Summary of Economic Predictions), we likely know most all there is to know about the last meeting.
In the meantime, investors will also be watching yields, and developments in Middle East.
Q4 is off to a good start. Granted, we're only two trading days in (today is day 3), but all of the indexes are in the green. And I'm expecting a nice rally into the end of the year.
Remember, Q4 is historically the best quarter of the year for stocks. (Since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%.)
And Q3 earnings season is set to begin in 2 weeks. That too is great news since stocks typically go up during earnings season.
Lots to look forward to this month and this quarter.
So make sure you're talking full advantage of it.
See you tomorrow,

, Zacks Investment Research
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