“If you can keep your wits about you while all others are losing theirs, and blaming you. The world will be yours and everything in it…” — Rudyard Kipling

1. Retail sales rose 0.7% in September, much stronger than estimate — Retail sales rose 0.7% on the month, well above the 0.3% Dow Jones estimate, according to the advance report the Commerce Department released Tuesday. Gas station sales helped propel the headline number, rising 0.9% as prices at the pump accelerated.
Excluding autos, sales were up 0.6%, also well ahead of the forecast for just 0.2%. The so-called control group, which strips out items such as auto dealers, gas stations, office supply stores, mobile homes and tobacco stores and is used for the department’s GDP calculation, rose 0.6% as well. Sales gains were broad-based on the month, with the biggest rise coming at miscellaneous store retailers, which saw an increase of 3%. Online sales climbed 1.1% while motor vehicle parts and dealers saw a 1% increase and food services and drinking places grew by 0.9%, good for a yearly increase of 9.2%, which led all categories.
2. US Existing-Home Sales Sink to Lowest Level Since 2010 — Sales of previously owned US homes fell in September to the lowest level since 2010 as affordability worsened even further. Contract closings decreased 2% from a month earlier to a 3.96 million annualized pace, National Association of Realtors data showed Thursday. The median estimate in a Bloomberg survey of economists called for a reading of 3.89 million. The resale market remains historically depressed under the weight of decades-high mortgage rates. Not only are prospective buyers discouraged, but homeowners who previously locked in lower mortgage rates have no incentive to move, putting pressure on inventories and therefore prices.
3. The 10-Year Treasury Yield Came Close to 5% — The 10-year yield was down 0.05 percentage point on Friday, to 4.94%, after closing at 4.99% on Thursday then pushing closer to 5% in overnight trading. The yield has climbed 1.2 percentage points since July alone, as investors have increasingly priced in the likelihood that the Federal Reserve will lift interest rates higher than expected and leave them there longer. Data showing strength in the labor market, retail sales, and elsewhere in the economy have lifted expectations for inflation, prompting investors to factor in tighter monetary policy later into 2024. The higher yields on offer today are an attractive opportunity for investors looking for some greater risk-free income, but reaching them has been painful for those already holding bonds in their portfolios. Bonds’ prices fall as their yields rise.
4. Jim Jordan Is Removed as GOP Nominee After Third Loss in Speaker Vote — Rep. Jim Jordan was ousted as the GOP’s nominee to be House speaker, as colleagues voted to start over fresh next week after the fiery Ohio conservative failed for the third time to win a majority on the House floor. Jordan has faced opposition from GOP colleagues worried about how he would manage spending talks and avoid a government shutdown; allies of other party leaders who were pushed aside in favor of Jordan; and moderates from Democratic-leaning regions who see him as too stridently conservative.

The week ahead — Economic data from Econoday.com:

“ be fearful when others are greedy and to be greedy only when others are fearful.” — Warren Buffett

1. Producer Prices Came in Slightly Hotter than Expected — The producer-price index increased 0.5% from the prior month, a slowdown from August’s 0.7% increase, but still above economists’ expectations for 0.3% growth, according to FactSet. Excluding food and energy, core producer prices rose 0.3% for the month, slightly above expectations for a 0.2% gain. Leading the increase in September were prices for final demand goods, which increased 0.9%, and services, which were up 0.3%. For final demand goods, the increase can be attributed to higher energy prices, including a 5.4% rise in the index for gasoline.
2. Fed Minutes Show Officials Divided on Future Rate Rise — Federal Reserve officials were split over whether they would need to raise interest rates again this year when they decided last month to hold their benchmark policy rate steady. Officials most recently raised their benchmark federal-funds rate in July to a range between 5.25% and 5.5%, a 22-year high. They began lifting rates from near zero in March 2022. A run-up in long-term Treasury yields that began in August accelerated after last month’s meeting. If sustained, the rise in yields could moot the need for Fed officials to raise rates again this year. Economic projections released last month showed most officials had penciled in one more rate rise this year. But they made those projections before a further jump in long-term yields, which is raising rates on mortgages, auto loans and business debt.
3. US Consumer Prices Rise at Brisk Pace for Second Straight Month — The so-called core consumer price index, which excludes food and energy costs, increased 0.3% in September, Bureau of Labor Statistics data showed Thursday. Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure climbed 0.4%, boosted by energy costs. Recent inflation data underscore how a strong labor market is underpinning consumer demand, which risks keeping price pressures above the Fed’s target. At their meeting last month, a majority of officials saw a need for one more interest rate hike this year, and they may maintain that bias — despite a recent surge in bond yields — if inflation doesn’t cool further.
4. JPMorgan Posts Big Earnings Beat, Setting Bar High for Other Banks — JPMorgan Chief Executive Jamie Dimon celebrated the results but also urged caution amid a challenging macroeconomic and geopolitical backdrop, which includes quantitative tightening and wars in Ukraine and Israel. Bank stocks have been punished this year as rapidly rising interest rates have caused many problems for lenders. At first, banks could delight in the fact that higher rates allowed them to earn more interest on the loans they issue. But high rates also have the tendency to keep potential borrowers on the sidelines and pressure current borrowers into delinquencies. The jump in rates has also meant savers now have more options for where to park their nest eggs and earn yield, putting pressure on banks’ funding costs.

The week ahead — Economic data from Econoday.com:

‘Buy On The Cannons, Sell On The Trumpets’ — NICHOLAS VARDY

1. Hiring Accelerated With 336,000 Jobs Added Last Month — Employers added 336,000 jobs in September, the strongest gain since January and up sharply from the prior month’s upwardly revised 227,000 gain, the Labor Department said Friday. Job growth was also stronger in July than previously estimated. The unemployment rate held steady at 3.8% last month, near historically low levels. Employers raised pay at a solid pace as they competed for a limited pool of workers. Average hourly earnings rose 4.2% in September from a year earlier, down slightly from 4.3% in August. That was slower than last year but well above the prepandemic rate.
2. UAW Forgoes Additional Walkouts For Now, Citing Progress in Talks — The head of the United Auto Workers said Detroit’s automakers would be spared additional walkouts Friday, citing progress made in negotiations with all three companies. The UAW’s ongoing strike—the first to hit all three automakers simultaneously in the union’s 88-year history—enters its fourth week with about 25,000 factory workers on picket lines across five assembly plants and dozens of parts-distribution centers at GM GM 1.95%increase; green up pointing triangle, Ford and Stellantis. Fain had called additional work stoppages at facilities across the companies’ operations for three straight weeks.
While the issues of wage increases and retirement benefits are central in the negotiations, the automakers’ plan to collectively spend billions of dollars on new U.S. battery plants has hung over the talks. Union leaders have said they want those factories to be unionized, in part because of concerns about job losses or reduced wages as the companies transition to electric vehicles.
3. Biden Administration to Resume Border Wall Construction in Policy Reversal — in a public notice posted Wednesday, the Department of Homeland Security outlined its intent to build up to 20 new miles of Trump administration-era border barriers in the Rio Grande Valley of Texas, one of the busiest crossing spots for migrants attempting to enter the U.S. The about-face by the administration—which halted all border-wall construction on the first day of Biden’s presidency—shows its increasing desperation to tamp down illegal border crossings, which have surpassed two million for each of the last two years.
4. Kaiser Permanente Employees Enter Second Day of Largest Healthcare Strike — the largest health care strike in US history is now in its second day after more than 75,000 Kaiser Permanente workers began walking off the job on Wednesday. The striking employees, who work across California, Colorado, Washington and Oregon, are represented by a coalition of unions that comprise 40% of Kaiser Permanente’s staff. Nearly 200 workers from Kaiser facilities in Virginia and Washington, DC, joined the picket lines for a single day on Wednesday, as well. The union coalition is demanding higher pay among other benefits, including a strategy to fix a chronic staff shortage that workers say has left them overworked and burnt out, especially in the wake of the pandemic. Employees in a wide array of roles at Kaiser are on strike, including nursing staff, dietary workers, receptionists, lab technicians, and pharmacists.

The week ahead — Economic data from Econoday.com:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” ― Warren Buffett

1. Standoff in Congress Brings Government to Brink of Shutdown — House Speaker Kevin McCarthy (R., Calif.) rebuffed a bipartisan short-term funding bill from the Senate in favor of a House Republican plan driven by conservatives, as dim prospects for a deal raised the likelihood of a partial government shutdown starting this weekend.
Many lawmakers now anticipate that Congress will fail to fund the government past Sept. 30, a lapse that will partially close federal agencies and temporarily withhold pay for federal workers and active duty-military personnel. Both the House and Senate are moving ahead with their own stopgap proposals intended to keep the government open while work continues on full-year funding legislation. Each plan is considered a nonstarter in the other chamber, however, with sharp differences on spending levels, Ukraine and border security.
2. UAW Threatens More Strikes as GM, Stellantis Try to Keep Repair Parts Flowing — the United Auto Workers union pledged to widen its strike on Friday barring significant progress in talks with Detroit carmakers, as the companies take steps to keep critical parts flowing to their dealerships. Parallel talks between the UAW and General Motors, Ford Motor F -0.32%decrease; red down pointing triangle and Chrysler-parent Stellantis STLA -0.16%decrease; red down pointing triangle continued, a union official said Wednesday, nearly two weeks into a limited strike at all three automakers. The UAW official said the union would identify new strike targets at 10 a.m. Friday, with walkouts to begin at noon, unless bargainers make headway in negotiations for new four-year contracts. Last week, the UAW expanded the strike beyond three assembly plants—one at each company—to include 38 parts-distribution centers owned by GM and Stellantis. The union spared Ford from more walkouts, saying it was making progress in contract talks with the automaker.
3. Underlying Prices Cooled in August, Giving the Fed More Evidence of Softer Inflation — the Fed’s preferred inflation gauge, the personal-consumption expenditures price index, rose a seasonally adjusted 0.4% last month, largely reflecting energy costs. Core prices, which exclude food and energy, rose just 0.1% in August, the weakest monthly increase since 2020, the Commerce Department reported.
Over the three months through August, core prices rose at a 2.2% annualized rate. If that trend continues in the coming months, inflation would be running very close to the Fed’s 2% target. But higher energy prices pushed up overall inflation last month, highlighting why officials aren’t ready to declare victory.
4. UAW Expands Strike to GM Plant in Michigan, Ford Factory in Chicago — UAW President Shawn Fain said during a livestream address Friday that Chrysler-parent Stellantis STLA -0.73%decrease; red down pointing triangle would be spared from further walkouts for now, saying the company delivered a proposal that made significant progress on the union’s demands, including cost-of-living adjustments. The new walkouts would add nearly 7,000 workers to the roughly 18,000 UAW members on strike across the three companies, at three assembly plants and dozens of parts-distribution facilities. The Detroit companies combined have about 146,000 union workers.
5. McCarthy’s Bill to Avoid Government Shutdown Defeated in House — the bill failed in the Republican-led House with 198 in favor and 232 against, with 21 GOP lawmakers joining all Democrats in voting No. The defeat marked the latest embarrassing floor setback for McCarthy and underscores the bind facing GOP leadership. With a narrow 221-212 Republican majority in the House, McCarthy has repeatedly crafted legislation to win over the hard-line conservatives in his conference—only to see the bills fail anyway. The intraparty deadlock has left Republicans with no clear path forward, sidelined any talks with Democrats and put McCarthy’s job at the top of the party in peril. The McCarthy proposal would have extended government funding through Oct. 31, but at a $1.471 trillion annual rate, down from $1.6 trillion in fiscal 2023. The bill also included strict new border-security measures and the creation of a fiscal commission charged with coming up with ways to balance the budget and improve the country’s fiscal outlook.

In addition to the above events, the following economic data releases also had an impact on the market last week:

— ISM Manufacturing PMI: The ISM Manufacturing PMI for September was 49.8, below the consensus forecast of 50.2. This suggests that the manufacturing sector is contracting.
— ISM Services PMI: The ISM Services PMI for September was 53.6, above the consensus forecast of 53.2. This suggests that the services sector is still expanding, although at a slower pace than in previous months.
— Nonfarm payrolls: The US economy added 170,000 jobs in September, below the consensus forecast of 187,000. However, the unemployment rate remained at 3.7%, its lowest level since 1969.