lutz logo
lutz logo
  • Services
  • News & Insights
  • About
  • Client Portal
Search
  • Services
  • Accounting
  • Consulting
  • Financial
  • M&A
  • Talent
  • Tech
  • Accounting Services
Services
  • Audit & Assurance
  • Employee Benefit Plans
  • Client Advisory Services
  • Outsourced Accounting
  • Tax
  • State & Local Tax
View All
Industries
  • Agribusiness
  • Construction
  • Family Office
  • Healthcare
  • Manufacturing & Distribution
  • Nonprofit
View All
News & Insights
Website Featured Content Images-2
Blog
Are You Prepared? Financial Access Checklist for Spouses

Share this checklist with your spouse to assure you each have access to manage important financial tasks independently.

Read More
  • Consulting Services
Services
  • Business Valuation
  • Healthcare Consulting
  • Internal Control Assessment
  • Litigation Support & Forensic
  • Risk Assessment
View All
Resources
Website Featured Content Images (1)-1
Guide
What is a Comprehensive Risk Assessment?

To start managing your business's risk, you will need to conduct a comprehensive risk assessment.

Read More
Business Insights
Website Featured Content Images (2)-1
Blog
Top 3 Financial KPIs Every Business Owner Should Track

Key Performance Indicators (KPIs) can help illustrate your business’s financial health and show whether your business will turn a profit.

Read More
  • Financial Services
Services
  • Financial Planning
  • Investment Advisory
  • Retirement Plan Services
  • Pooled Employer 401(k) Plan
View All
Resources
  • Lutz Financial Blog
  • Our Team
  • Client Portal
  • Charles Schwab Login
  • Send Files Securely
Contact Us
NEWS & INSIGHTS
Website Featured Content Images
MARKET COMMENTARY
Financial Market Updates

Want to receive financial market updates straight to your inbox? Sign up below!

Subscribe
  • M&A Services
Services
  • Sell-Side Representation
  • Transaction Advisory
  • Exit Planning
View All
Resources
Website Featured Content Images (3)
Ebook
7 Factors to Consider Before Selling Your Business

We give you exclusive insights on the business sale transaction process to help you answer seven important questions.

Read More
Business Insights
Website Featured Content Images (5)
Blog
Key Items to Review During Financial Due Diligence
The due diligence phase is critical for a Buyer to better understand the Target’s business operations and the overall quality of the financial information.
Read More
  • Talent Services
Services
  • Search & Staffing
  • Outsourced HR
  • HR Strategy & Coaching
  • HR Consulting
View All
Candidate Resources
  • Job Seeker Process
  • Current Opportunities
  • Lutz Internships
Contact Us
News & Insights
Website Featured Content Images-3
Blog
5 Benefits of Using Gallup's CliftonStrengths in Your Company

Gallup’s CliftonStrengths assessment can help you identify the strengths of the people working in your teams.

Read More
  • Tech Services
Services
  • Data Analytics & Insights
  • Outsourced IT
  • Technology Strategy
  • Software Consulting
View All
Resources
Website Featured Content Images (1)-2
Guide
Introducing Data Analytics into Your Business

Integrating data analytics into your business can help your revenue grow, the organization mitigate risk, or gain insight into your business operations.

Read More
Business Insights
Website Featured Content Images (2)-2
Blog
17 Tech Tips & Tricks

We’ve listed 17 shortcuts and hacks that will help you use tech to your advantage and make your daily life a little easier.

Read More
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
Webinars & Events
Events
Register Today

Register for an upcoming event or access our library of on-demand recordings.

View All
Lutz Talk Business
PODCAST
Tune In

Subscribe today for entrepreneurially spirited episodes of witty commentary for young professionals.

View All
Resources
EBOOKS & GUIDES
Download Now

Take a deep dive into challenging business topics with these free educational resources. 

View All
  • News & Insights
  • Business Insights
  • Webinars & Events
  • Lutz Talk Business
  • Resources
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
  • About
About

Lutz is a business solutions firm for people seeking a partner to help energize and heighten economic and organizational success.

Our Company
Our Team
Offices
Careers
Internships
Contact Us
  • Contact
Client Portal

Log in to your relevant client portal to access your account, upload documents, or make a payment.

Make a Payment
Accounting Client Portal
Financial Client Portal
Charles Schwab Login
Send Files Securely
Contact Us
  • Market Commentary

Good News is Bad News + Financial Market Update + 10.11.22

Josh Jenkins, CFA, Chief Investment Officer, Principal
October 11, 2022
Good News is Bad News + Financial Market Update + 10.11.22

STORY OF THE WEEK

GOOD NEWS IS BAD NEWS

Last Friday, the Bureau of Labor Statistics published its monthly payrolls report, showing the economy added 263,000 new jobs during September. The figure marked a decline from the prior month’s 315,000 and came in below expectations, with economists surveyed by MarketWatch expecting 275,000. Despite falling month-over-month and missing expectations, the report was actually considered to be quite strong. Going back to 1939, the average number of jobs added each month has been a much lower 122,000. Additionally, the unemployment rate declined to 3.5%, matching the lowest level since 1969.

Under normal circumstances, strong economic data would be considered a positive for the stock market, but that was certainly not the case last week. The S&P 500 fell -2.8% on Friday following the report. So why did objectively ‘good’ news result in a clearly ‘bad’ outcome for stocks? The answer has much to do with the relationship between the labor market and inflation.

The Federal Reserve has the dual mandate of supporting both maximum employment and stable prices. Price stability is easily defined and is represented by the rate of inflation. Maximum employment is more difficult. It would be understandable to think of maximum employment as an environment where everyone that wanted a job had one, but that is technically not the case.

There is a relationship between employment and wage growth that is described by an economic model known as the Phillips Curve. At a high level, the model demonstrates that:

  1. Low levels of unemployment are associated with higher inflation, and
  2. High levels of unemployment are associated with lower inflation

Based on this relationship, if everyone that wanted a job had one, there would likely be extremely low unemployment accompanied by price instability in the form of high inflation. In light of this, the Federal Reserve instead defines maximum employment as the highest level of employment the economy can sustain without generating unwanted inflation.

A major challenge for policymakers is that the maximum level of employment cannot be directly measured, and it changes over time. With inflation at multi-decade highs and unemployment at multi-decade lows, you would be hard-pressed to make the argument that the labor market was not beyond the maximum level.

This brings us back to the market’s reaction to the strong payrolls report. The Fed has been rapidly tightening monetary policy to cool the rate of inflation. As of this writing, the fed fund futures market is pricing an additional 1.25% worth of hikes between the next two Fed meetings (on 11/2 and 12/14). Higher interest rates can negatively impact the stock market in two primary ways:

  1. The expected return on a relatively low-risk government bond begins to look more attractive as interest rates rise. To entice investors to take on stock market risk, the expected return on stocks must commensurately increase.
  2. Higher interest rates are a headwind to economic activity, which can lower the earnings prospects for businesses.

Any evidence that suggests the Fed will have to do more than the market is currently expecting could be met with a further decline in asset prices. Conversely, evidence that inflationary pressures are abating could be met with a rally. Said another way, good news is bad news for the time being, at least as it relates to labor market data.

WEEK IN REVIEW

  • Aside from the payrolls report last week, a couple of other indicators flashed hints of a cooling labor market. Initial jobless claims (a proxy for layoffs) increased by 29k, the largest weekly increase since June. Additionally, job openings declined by 1.1 million to a still (very elevated) 10.1 million.
  • The most important economic data to watch for this week will be the Consumer Price Index (CPI), to be published Thursday morning. Economists surveyed by MarketWatch expect headline inflation to fall 0.2% YoY to 8.1%. Core inflation, which strips out the volatile food and energy components, is expected to increase by 0.2% to 6.5%. The market could experience a substantial move if the data differs widely from expectations.
  • Earnings season is poised to hit full steam this week as some of the nation’s largest banks are set to report results. According to FactSet, analysts are expecting earnings growth for the S&P 500 of 2.4%. The estimates have been downgraded from the beginning of the quarter when analysts were excepting earnings growth of 9.9% for Q3.

LFS BLOG

  • Is Value Investing Dead?
  • Why Investors Should Own International Stocks
  • 3 Things All Investors Should Know

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • Unemployment Rate Falls to 3.5% in September, Payrolls Rise By 263,000 as Job Market Stays Strong (CNBC)
  • Job Openings Plunged by More than 1.1 Million in August (CNBC)
  • Why the Federal Reserve Won’t Be So Quick To Ease Up On Its Fight Against Inflation (CNBC)

Investing

  • Expectations (Morgan Housel)
  • The Last Time the Fed Created a Recession (Ben Carlson)
  • Y’all Should Stop Making Emotional Bets(Barry Ritholtz)

Other

  • The Repairs That Will Help Sell Your House In a Cooling Market (WSJ)
  • BAM! NASA Says DART Really Clocked That Asteroid (Wired)
  • 5 Key insights into ‘Quit: The Power Of Knowing When to Walk Away’ (Annie Duke)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

  • Achiever, Competition, Ideation, Significance, Command

Josh Jenkins, CFA

Chief Investment Officer, Principal
Josh Jenkins is a Chief Investment Officer and Principal at Lutz Financial. He began his career in 2010. Josh leads the Investment Committee and specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership, and the division's analytics and operational efficiency. He lives in Omaha, NE.

402.763.2967

jjenkins@lutz.us

Connect on LinkedIn

Recent News & Insights

Market Commentary
What Happened to the Recession of 2023? + Market Update + 9.19.23
The consensus view from economists entering 2023 was that the U.S. would likely be in a ...
Read More
M&A
Lutz adds Robert Powell to Omaha Office
Lutz, a Nebraska-based business solutions firm, recently added Robert Powell to its Omaha ...
Read More
Accounting
Lutz adds Kinney, Krause, and Wolf as Client Resource Assistants
Lutz, a Nebraska-based business solutions firm, recently added Samantha Kinney, Shelby Krause, ...
Read More
Accounting
Proposed CMS Lump Sum Payment to 340B Hospitals
The Centers for Medicare and Medicaid Services (CMS) is proposing a $9 billion lump sum ...
Read More
module-bg-desktop module-bg-mobile

Let’s get you where you want to go.

We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.
Contact Us
Lutz-Logo-white
  • Services
    • Accounting
    • Consulting
    • Financial
    • M&A
    • Talent
    • Tech
  • About
    • Our Company
    • Our Team
    • Offices
    • Careers
    • Internships
    • Current Opportunities
  • Client Portal
    • Make a Payment
    • Accounting Client Portal
    • Financial Client Portal
    • Send Files Securely
    Submit RFP
TOLL-FREE: 866.577.0780 | © Lutz & company, PC 2023 | Privacy Policy
Follow us on Facebook Follow us on LinkedIn Follow us on Twitter Follow us on Instagram Follow us on Facebook