Stocks got crushed today after this morning’s September jobs report release. Unemployment fell from 3.7% to 3.5% last month, applying huge pressure to bulls as the odds of a Fed pivot dropped substantially. The Bureau of Labor Statistics (BLS) also said the US economy added 263,000 jobs last month, missing the Dow estimate of 275,000.
“While the data was about as expected, the drop in the unemployment rate is seemingly what the markets are obsessed with because of what it means for the Fed,” said Peter Boockvar, chief investment officer of Bleakley Financial.
“When combined with the low level of initial jobless claims, the pace of firing’s remains muted and this of course gets the Fed all fired up about continuing with its aggressive rate hikes.”
Rates up, stocks down. Rates down, stocks up. That’s what’s driving markets. And, outside of a surprisingly cool Consumer Price Index (CPI) release next week, the Fed’s hawkish stance may be set in stone.
“The robust September jobs report significantly bolsters the case for a fourth consecutive 75-basis-point hike at the November FOMC meeting. The labor market remains tight, and the supply of workers isn’t growing fast enough to bring down wage growth,” said Bloomberg Economics’ chief US economist Anna Wong.
“Adjusted for slowing productivity growth, wage growth is running at least triple the pace consistent with the Fed’s price target. Concerns about a wage-price spiral will keep the Fed hiking well into 2023 until rates reach 5%, in our view.”
The Wall Street Journal’s Nick Timiraos, a noted Fed mouthpiece, did his best to squash bullish hopes today as well.
Timiraos wrote this morning that “the September solid employment report is keeping the Federal Reserve on track to approve another large interest-rate increase at its meeting next month as officials seek to lift borrowing costs high enough to soften the labor market and ease inflation pressures.”
In other words, a 75 basis point hike is on its way, and the Fed won’t pivot any time soon.
A bond market blowup (like the one that just happened in the UK) could change that, of course. Otherwise, it’s a very grim scene on Wall Street.
“The conclusion many we have spoken with have reached is that not only will the Fed not help markets, but in their dogged pursuit of price stability keep going until something breaks in the capital markets,” said Wells Fargo Securities analyst Christopher Harvey.
“What appears to be their increasingly singular focus — price stability — will likely help catalyze the dislocation.”
Without a Fed bailout, however, stocks like NVIDIA Corporation (NASDAQ: NVDA) are set to head even lower. NVDA closed below its 10-day moving average this afternoon while running into support (yellow line).
The stock also set a lower high and the stochastic indicator suggests it has plenty of room to fall.
For those reasons, it might make sense to take NVDA short with a trade trigger of $119.02, below today’s low, as the general market looks to avoid a deeper selloff.