By: Andrew B. Noto

It feels like bad news has been good news to investors lately. We opened the month of October last week with two consecutive days of positive returns. Monday’s catalyst was investors thinking the Federal Open Market Committee’s (FOMC) tightening cycle may come to an end sooner rather than later due to the Bank of England’s pivot to curb their inflationary pressures. The upward momentum continued Tuesday last week when the Job Openings and Labor Turnover Survey, also known as the JOLTS Report, showed that job openings fell. Typically, a reduction in job openings is negative news but with the surplus of job openings to unemployed workers, this bad news is now good news.

The positive returns of the early week trading sessions were almost erased completely later in the week as the September payroll report was released showing that payroll employment and household employment increased more than analyst expectations. Good news which is actually bad news for investors as they viewed this as a “one step forward, two steps back” scenario. Though the report earlier in the week saw job openings decrease, this report showed payrolls increasing. Investors feel like this is fuel to the FOMC’s fire to continue their tightening regiment.

The rhetoric of “what’s bad is good” continued today as the September Consumer Price Index (CPI) data was released this morning. The report showed that inflation continues to persist as CPI rose 8.2% last month relative to a year ago, though it did slightly slow down month over month. With this news, the S&P 500 rose 2.60% (92.87 points) and the Dow Jones Industrial Average rose 2.83% (827.87 points) as investors feel like they have clarity regarding the FOMC’s next move in their November meeting. The S&P 500 Index is now above its June low that we have previously referenced.

There’s a popular saying, “don’t fight the Fed” and right now, investors are doing their best to comply and react to the FOMC’s next move. Inflation remains at the forefront as the Fed tries to restore price stability and bring inflation down to its current target of 2%. It is expected that another 0.75% increase to the Federal Funds Target Rate is the Fed’s move for their November meeting and today’s CPI data all but cements that outcome. We remain committed to the idea that the markets will be volatile until inflation is under control, but that does not mean there won’t be opportunities in the market, especially in fixed income.

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