Further Stock Market Rally On The Favorable US Economic Data

The stock market should continue to climb in response to last week's favorable US economic data.  The data point to slower economic growth in Q423 and subdued wage inflation.  They support the idea that the Fed's rate hiking cycle is over.  As a result, concerns about the Fed are on the back burner for now, so that Fed Chair Powell's speech this week, which should repeat what he said at the post-FOMC news conference, will likely have little market impact.  Moreover, strong demand at this week's Treasury auctions of longer-dated securities -- reflecting the more subdued outlook for Fed policy -- could help lift stocks.

The October Employment Report is good news for the Fed and markets.  It points to slower growth in Q423 and reduced labor market pressures (including wages). 

The Report contains a number of signs that economic growth is slowing.  /1/ The +150k m/m increase in October Payrolls (+185k excluding strikers) was below this year's trend (+249k).  /2/ The Nonfarm Workweek slipped to 34.3 Hours, putting it below the 34.4 Q323 average.  /3/ Total Hours Worked (THW) fell 0.3% m/m, putting the October level flat relative to the Q323 Average.  In contrast, THW rose 1.4% (q/q, saar) in Q323.  /4/ The uptick in the Unemployment Rate to 3.9% put it at the upper end of the Fed's Central Tendency forecast of 3.7-3.9% for Q423.

The Report suggests that wage inflation remains in check.  The 0.2% m/m increase in Average Hourly Earnings shows a broad-based acceptable pace among sectors -- that is, a pace consistent with the Fed's 2% price inflation target, taking account of trend productivity growth.  Ten of the thirteen sectors had an increase of 0.3% or less in both October and the 3-month average.  This is better than September's seven of thirteen sectors with an acceptable pace of wage increase. 

Looking ahead,  the October CPI, due November 14, may not fully be in line with the Fed's goal.  The Total should print below September's +0.4%,  thanks to the decline in gasoline prices.   However, it is not clear whether the Core CPI will slow from September's +0.3%.  Nevertheless, a modestly high print may be ignored by the market, given the signs of a slowing economy.