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Market Recap – October 9, 2023

Keel Point

October 9, 2023

The big news last week was the September employment report showing a 336,000 increase in non-farm payrolls and upward revisions of 110,000 jobs for July and August.  Equity markets rallied and the S&P 500 closed higher for the week.

  • The Household Survey showed the labor force increasing by 90,000, leaving the unemployment rate at 3.8%, reflecting a less-tight labor market than earlier this year.
  • Average hourly earnings were up 0.2% for the month and 3.4% over the last three months, which is consistent with the Fed’s 2% inflation target.

With longer-term U.S. Treasury rates rising significantly in the last couple months even as inflation is coming down, the Fed is nearing the end of its rate increasing cycle, and signs of slower growth are emerging, the big question is whether this might be a good time to lock in higher real returns on risk-free Treasury bonds.

  • The 10-year Treasury reached 4.88% last week – a 16-year high – and ended the week at 4.804% which puts its after-inflation real yield at a 15-year high. It is up 1.34 percentage points over the last four months, which is a 39% increase.
  • Some of the factors driving the 10-year and other medium to longer term treasury rates higher are thought to be short term, so there is a belief that these higher Treasury rates will fall back as the Fed drives inflation back to 2%, the economy weakens, and the Fed cuts short term rates beginning in 2024.
  • There is a concern, however, that intermediate- and longer-term Treasury rates are increasing because of the significant increase in Treasury borrowing needs resulting from higher interest rates being applied to accelerating growth in annual deficits and the national debt.
  • Meanwhile, rising 10-year Treasury interest rates are pushing up home mortgage rates which this past week reached 7.93% for a 30-year fixed-rate mortgage – a level not seen in the U.S. in over 23 years. A $500,000 30-year mortgage would have cost $1,972 per month at the 2.8% mortgage rate available in early 2021, and today would cost $3,488 per month at a 7.9% rate. (Axios)

U.S. GDP growth is getting a boost in the third quarter (July-September) from higher exports and lower imports which could add as much 1.3% to overall economic growth. With both higher Q-3 consumer spending and higher net exports, third-quarter GDP growth may be as high as 3%.

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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