Markets grappled with a series of mixed signals that ultimately caused significant volatility over the course of the week. The seesawing was a reaction to delayed data releases, corporate earnings and Fed clues about future interest rate moves. As of this writing, the S&P 500 is tracking a weekly decline of 2% and NASDAQ is down 3% for the month, its worst November since 2008.  

The Fed gave markets plenty to think about with the release of its October meeting minutes, in addition to a non-emergency huddle between the New York Fed and big banks last weekend to address recent overnight funding pressures. The clandestine meeting is being called a canary in the coal mine and the recent liquidity injections suggest persistent cash shortages rather than month-end settlement noise. The New York Fed’s Standing Repo Facility saw $50.35 billion in borrowings in a single day from big banks last week, its largest single day usage since 2021. SOFR and other overnight rates continue to trend above the Fed’s Interest on Excess Reserves, indicating reducing liquidity. 

The meeting minutes underscored the uncertainty around a rate cut in December, noting, “Many participants suggest that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year.” Parsing out Fed language, “many participants” typically represent a higher number than “most/majority of members,” so it would appear the committee would not be leaning towards a December rate cut with how economic conditions stood at the time of the meeting. The minutes also showed that “almost all participants” supported the decision to stop the Fed’s balance sheet runoff, while several policymakers pointed to “the possibility of a disorderly fall in equity prices, especially in the event of an abrupt reassessment of the possibilities of A.I. related technology.” Interest rate futures showed a 35% probability for a December rate cut until New York Fed President John Williams made some hawkish comments on Friday and sent futures up to a 65% probability. 

The nonfarm payrolls report was released for September which showed the unemployment rate ticked higher to 4.4% while employers added 119,000 jobs versus estimates for a 51,000 increase. Augusts’ job additions were revised down from a 22,000 increase to a 4,000 net loss. The backlog of jobless claims as of September 27 was also released and indicated that the initial claims remained stable throughout the shutdown. Continuing claims show workers are still having a hard time finding new jobs. This data points to an uneven labor market heading into the fourth quarter, which makes the case for a Fed pause next month as the BLS announced the October nonfarm payrolls report will not be published.

KEY INDICATORS THIS WEEK

Housing Market – Redfin published a report showing the gap between home buyers and home sellers is the largest it's been since 2013, with the latter outweighing the former by 36.8%
Next Week – Retail sales, PPI, Fed Beige Book, Case-Shiller Home Price Index and Thanksgiving!