Market Research

Focus on Labor Market

RECAPPING LAST WEEK

All U.S. equity indices hit record highs last Monday, with momentum fueled by NVDA’s
$100B data center investment with OpenAI. Gains faded after Fed Chair Powell flagged
stock valuations and second quarter GDP was revised up to 3.8%, tempering
expectations for two more rate cuts this year.

Major indices ended the week modestly lower, falling less than 1% each. Metals advanced further, with gold rising 2% and silver rocketing higher by more than 7%. Only the energy and utilities sectors managed to stay positive, rising 4% and 2% respectively. The energy rally was supported by surging oil prices amid reduced Russian exports and multiple Ukrainian drone attacks on Russia’s energy infrastructure. U.S. economic data was mixed. Business activity slowed for a second straight month, with S&P Global’s flash composite PMI easing to 53.6 in September, dragged by weaker manufacturing and services. Firms flagged tariffs as the main driver of higher input prices, but weak demand limited their ability to pass through costs. New home sales surged 20.5% in August, the best result in 3 years, but existing home sales were flat. Median home prices increase 2% YoY which appears to be largely a result of investors’ influence–28% of sales were all-cash. Durable goods orders rose 2.9% in August and the goods trade deficit narrowed sharply to $85.5B.

Jobless claims came in below expectations at 218k, but continuing claims remained elevated, signaling longer unemployment spells. Inflation held steady with Fridays Core PCE at 2.9%, but expectations are for that to turn higher, with 1-year expectations up to 4.7% helping pull consumer sentiment down to 55.1 from 55.4. Globally, Germany’s flash PMI improved to 52.4, the best result in 16 months, while its business climate index softened to 87.7. The U.K. PMI dipped to 51 amid higher labor and energy costs. In Asia, China held rates steady, Japan’s CPI was flat at 2.5% YoY, and Australia’s CPI rose to 3.0%,
leading to doubts that the country would see easing in the near term.


THE WEEK AHEAD

Markets enter October with the focus squarely on the labor market. JOLTS on Tuesday,
ADP on Wednesday, nonfarm payrolls, unemployment, and wage data on Friday will set
the tone for Fed policy expectations. Inflation remains a central theme. This week’s ISM
Manufacturing and Services PMIs will be closely watched for price pressures, while
global PMIs from Europe and China are expected to highlight diverging growth trends.
Consumer sentiment and wage data may offer clues to how much higher costs are
affecting demand. Commodity markets could see added volatility after Wednesday’s
OPEC meeting, where any signal on supply cuts would feed into inflation expectations.

Other factors to watch include U.S. Treasury auctions across the curve and the
upcoming Q3 earnings season, beginning with major banks. Fed commentary and
geopolitical developments remain potential swing factors. Together, these events may
drive sharp moves across equities, interest rates, and commodities as investors
reposition around data and policy risk.

(Schwab)

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Definitions

Annualized Return: The rate at which an investment grows each year over the period to arrive at the final valuation.
Bear Market: A decline of at least 20% from the market’s high point to its low.
Beta: A measure of how an individual asset moves when the overall stock market increases or decreases.
Correlation: A measure of the extent to which two variables are related.
Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend
payments divided by its market capitalization, assuming the number of sharesis constant.
Developed Markets: A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness
to foreign ownership, ease of capital movement, and efficiency of market institutions.
Emerging Markets: A country that has some characteristics of a developed market but does not fully meet its standards. This includes markets that may become
developed marketsin the future or were in the past.
GrowthFactor Stocks: Growth stocks are companies expected to grow sales and earnings at a fasterrate than the market average.
LargeCap Stocks: Shares of publicly traded corporationswith a market capitalization of $10 billion or more.
LTM: An acronymfor”Last Twelve Months”or the past one year.
NTM:An acronymfor”Next Twelve Months” or the next one year.
Price Return: The rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, not including
income generated in the form of interest or dividends.
Total Return: Return on a portfolio of investmentsincluding capital appreciation and income received on the portfolio.
Small Cap Stocks: Small-cap stocks are shares of companieswith a market capitalization of less than $2 billion.
Standard Deviation: In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates the
valuestend to be close to the historical average of the data set, while a high standarddeviationindicatesthe current value is outside of the historical average range.
Value Factor Stocks: Stocksthat are inexpensive relative to the broad market based on measures of fundamental value (e.g., price to earnings or price to book).

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