Politics, War Take Place of Hard Data This Week as Markets Gauge … – U.S. News & World Report

Market-churning economic news is lacking this week, but that doesn’t mean Wall Street and the economy can rest easy.

The political news heats up, with Donald Trump set to testify in his civil fraud trial in New York. The former president and front-runner for the GOP nomination will be absent when party rivals gather in Miami on Wednesday in another debate. And elections take place across the country on Tuesday that could show where the country stands politically one year out from the 2024 election.

Geopolitics remains a tinder spot with Israel for now rebuffing calls for a cease-fire in its war with Hamas, while Secretary of State Anthony Blinken visited the West Bank, Iraq and Turkey over the weekend and Monday as he seeks regional assistance to keep the the month-old conflict from spiraling into a regional war.

And then there’s the market itself. Following last week’s meeting of the Federal Reserve and the decision to leave interest rates unchanged, stocks rallied to end the best week for the three major indices since late 2022. Bond yields fell sharply as traders digested the likelihood the Fed is finished with its campaign of hiking interest rates to dampen down inflation. Mortgage rates fell 0.29% to 7.92% average for a 30-year fixed rate loan.

Meanwhile, a softer-than-expected jobs report on Friday had some analysts saying the economy was headed for a downturn.

“Job gains slowed to 150K, well below the ~260K average for the year to date, and the prior two months’ numbers were revised downwards by a combined 162K,” said Julia Pollak, chief economist at ZipRecruiter. “Working hours fell to 34.3, the very bottom end of the range we typically see during good economic times.”

“Rising financial strain, paired with declining worker leverage, are taking their toll,” Pollak said. “The decline in real disposable income last month suggests that consumer spending could cool further in the coming months, putting yet more downward pressure on the labor market.”

But, she added, “the good news is that this slowdown is not due to economic fundamentals, but rather due to careful orchestration by the Fed. If it turns out that the Fed and bond markets have gone too far, the Fed holds the keys to turning that around.”

Chris Rupkey, chief economist at FWDBonds, said that while the labor market remains strong by historical standards, the underlying data in the report from the Bureau of Labor Statistics is flashing a warning.

“The unemployment rate rose just a tenth to 3.9% in October versus September which the BLS called little changed,” he said. “But the low for unemployment was 3.4% in April this year, and every recession since the 70s has been called by a five-tenths rise in the unemployment rate … with only one mistake.”

Markets will get a chance to decipher current Fed policy with a variety of top officials speaking this week. Powell is scheduled to give opening remarks and a speech at two conferences in Washington. At his press conference following the decision on interest rates, Powell did credit the financial markets with doing some of the central bank’s work for it in recent week and he said the Fed staff still does not have a recession penciled into its economic forecasts while adding that there has not been talk of any rate cuts in the offing.

“So I think what we can say is that financial conditions have clearly tightened and you can see that in the rates that consumers and households and businesses are paying now. And over time, that will have an effect,” Powell said. “We just don’t know how persistent it’s going to be. And it’s tough to try to translate that in a way that I’d be comfortable communicating into how many rate hikes that is.”

And that may well be why a pause in economic news is just what the markets will need to determine how the rest of the year and 2024 is shaping up.

The question going forward though, is if this slowdown will be benign – a soft landing for the economy – or whether it will mark the beginning of a more meaningful deterioration that evolves into a recession,” BCA Research said in a client note Monday morning. “Over the near term, investors may not be able to distinguish between these two outcomes, which implies that investors should not rule out the possibility of a near-term equity rally.”

Stock futures were flat Monday ahead of the marlet’s open, digesting the news over the weekend that Berkshire Hathaway’s earnings totaled $10.761 billion last quarter. That’s 40.6% higher than the $7.651 billion earned from the same quarter a year ago. The Omaha-based conglomerate that is run by legendary investor Warren Buffett and includes holdings ranging across most sectors of the economy also said it was sitting on a record $157 billion in cash. Buffett has been buying up short-term Treasurys of late.