Michael Reinking:
Good morning. I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and you are listening to the Market Storylines Podcast on the Inside the Icehouse Podcast Feed. It's chilly here in New York City as the fall weather is officially rolling in, a sign that we are coming down the home stretch to the end of the year. That brings with it October baseball where legends are made and we'd be remiss not to give a shout-out to the New York Mets, one of the feel-good stories of this year's Major League Baseball Playoffs as they advance the National League Championship Series with the dramatic win yesterday and hopefully the New York Yankees can follow suit.
Now outside of the sports world, it's been a busy week, so let's get back to your regularly scheduled program and this week's market storylines as we record on Thursday afternoon.
Since the Fed's rate decision in the middle of September, markets have essentially been trading in a tight range around all-time highs. As we've discussed, the Fed's focus has clearly shifted to the labor market, making the monthly BLS employment report arguably the most important piece of economic data going forward. Now, last Friday's report came in well ahead of estimates with 254,000 jobs added to the economy and positive revisions of 72,000 jobs to the previous two months. Now, job gains were driven primarily in services led by leisure and hospitality, healthcare and education.
But there was some improvement on the goods-producing side as well with manufacturing declines moderating while construction hiring, which is often viewed as a leading indicator, held steady. Now, over the last year, we've discussed the divergence between the Establishment and the household survey, but this time they were both in lockstep as the household survey also was very strong, showing over 400,000 jobs added to the economy with the unemployment rate falling back to 4.1%. Now you can nitpick at some of the underlying data, but all in all, this was a very solid report after a couple months of disappointing data.
This pushed the S&P 500 back to the upper end of its recent range around 5750, but it also sent treasury yields sharply higher, which seemed to temper the enthusiasm as expectations for further aggressive easing reset. Now on Monday, the S&P 500 pulled back around 1% as yields continue to move to the upside breaking above the psychological 4% level. Now at the same time, ICE Brent also traded above $80, which was up about $10 since the start of the month, driven by a mix of optimism related to the stimulus announcements in China and geopolitical concerns related to the Middle East as the world awaits Israel's response to the recent missile attacks.
Now, Hurricane Milton was also making its way toward Florida, which was hitting insurance stocks hard with analysts projecting potential damages that could exceed $50 billion. Markets quickly bounced back on Tuesday, driven primarily by mega cap tech strength. And then yesterday the S&P 500 pushed to fresh all time highs with broader participation as it appeared that the worst case scenarios with Milton would be averted and oil prices pulled back. Now this morning, there was another round of important economic data with initial and continuing claims both jumping from last week.
CPI came in a touch hotter than expected pretty much across the board, though the headline inflation on an annual basis hit the lowest level since September of 2021. There were sharp declines in energy prices, which were offset by as 0.4% increase in food prices. Now broadly, goods which have been a source of disinflation recently did move higher this month. Within Core CPI, there were only two components that didn't have higher readings than last month, medical care, commodities and shelter, which dropped to 0.2% from 0.5%, which along with food still accounted for about 75% of the total increase.
Now, this is an important part of the conversation as markets and Fed officials have been waiting for this to turn lower, so there is once again some hope that this will be the inflection point. However, there's a lot of skepticism about today's data given the potential impact of Hurricane Helene on claims and some speculation that the goods increases within CPI may have been impacted by the anticipation for port strikes. My main takeaway from today is that the data is going to be pretty sloppy for a bit as hurricane strikes and the election impact data going forward.
This is going to complicate the Fed's job as they try to sort through the noise, and I'd caution against overreacting to a single piece of data in either direction. In fact, you can see the skepticism in today's market reaction as equities have only pulled back modestly and there isn't much of an impact on treasury yields, though there has been a sharp move higher over the last week with yields up about 40 basis points off the recent lows. Now the focus is now going to shift to earnings season, which unofficially starts tomorrow with the first of the major financials beginning to report.
Expectations are for S&P 500 earnings to be up a little more than 4% on a year-over-year basis, the fifth consecutive quarterly increase. Now, we'll dive deeper into this topic in the coming weeks, but if you can't wait, our earnings preview will be on the nyse.com later this week. Outside of earnings next week is setting up to be pretty busy. The key economic data in the US will be retail sales on Thursday on the same day the ECB has its rate decision and is expected to cut rates for the third time after recent economic data points to further inflation progress. China will also be a focal point.
Local markets have rallied over 20% since the middle of September as the government has been taking steps to address property market concerns and stabilize markets. The finance ministry is holding a press conference over the weekend to discuss the recent policy measures, drawing speculation of further policy announcements. Now, there's also another big round of economic data out of the country, which will likely continue to look weak, including trade data, GDP, industrial production, and retail sales. So there will be plenty to talk about next week.
Once again, thank you for spending some time with us today. Remember to tune in every Friday to the Market Storylines Podcast on the Inside the Icehouse Podcast Feed and rate, review and subscribe wherever you get your podcasts. Thank you for listening. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
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