Mid-Week Market Minute 10.05.22

Market Rebounds; Jobs Report on Friday

Investors breathed a sigh of relief this week as global stocks and bonds rallied sharply following a dismal September. The S&P 500 index climbed more than 4% as of Tuesday’s close, marking the best two-day rally in more than two years. Interest rates also moved lower this week as markets digested incoming data. After finishing September around 3.80%, the yield on the 10-year U.S. Treasury note traded lower around 3.62% mid-week. This bolstered bond prices, with the Bloomberg U.S. Aggregate (taxable bond index) tacking on about 1% in total return for the week. In commodities, oil prices moved higher this week ahead of OPEC’s meeting on Wednesday. Early reports indicate the oil cartel and its allies are considering reducing output by more than a million barrels a day. This, coupled with a brief sell-off in the U.S. dollar (which is still higher by about 17% so far this year), pushed WTI crude oil to more than $86 per barrel.

On the data front, the Institute of Supply Chain’s measure of manufacturing activity came in below expectations suggesting the economy may be slowing. As a precursor to Friday’s crucial jobs report, the Bureau of Labor Statistic’s Job Openings and Labor Turnover Survey (JOLTS) showed the amount of job openings in August fell more than expected, dropping by over one million from July. This could serve as an early indicator the acute worker shortage domestically is starting to soften. If Friday’s jobs report confirms this trend, it may serve as a sign for the Federal Reserve to consider a less aggressive stance on interest rates going forward, something that would be likely be viewed positively by the markets.

After trading as high as 32 last week, the CBOE Volatility Index (VIX) is now trading below 30. This still is well above historical averages and highlights the vast number of unknowns in the market right now. The past few weeks serve as an important reminder that the best and worst days in the market often occur very close together. Going back to 1930, if an investor in the S&P 500 missed the 10 best days each decade, the total return would be a mere 28% total compared to the investor who held on through the ups and downs and achieved a cumulative return of more than 17,000% (BofAML). There will be plenty more ups and downs for the remainder of this year, that much we know. The trouble is in the timing and trying to do so consistently with any sort of precision is not practical. As Peter Lynch said many years ago, “stocks are a safe bet, but only if you stay invested long enough to ride out the corrections.”

Source: GSAM, CNBC, JPMorgan

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