The FCMS Investment Committee is pleased to share the latest insights on the current financial market and economic developments.

Market Perspectives

Here are the top things from our FCMS Investment Committee on current financial markets and economic developments:

1. 1. 30-Year Treasury Trades Above 5% Amidst Political Turmoil

      Last week, the sell-off in Treasuries persisted despite global stocks closing higher, driven by mega-cap tech companies. The domestic political turmoil might have caused the sell-off in Treasuries. This included the historic moment when Speaker of the House, Kevin McCarthy was ousted. On Tuesday, McCarthy lost control of the House after a last-minute deal with Democrats that narrowly avoided a government shutdown. Twice in the past week, the 30-year Treasury traded above the key 5% level, the highest since 2007. The first time was in response to McCarthy’s loss of the Speakership, and the second was due to a much stronger-than-expected nonfarm payrolls print.

   2. September Nonfarm Payroll Figure Stronger Than Expected

      Following the much stronger-than-expected September nonfarm payrolls figure, Treasury yields increased while equities dropped by more than 1%. However, the market reaction reversed as investors analyzed the data, especially the smaller-than-anticipated wage rise. Even though the labor market remains tight, the decrease in wage pressures suggests that the supply-demand imbalance is normalizing. As a result, the Fed is unlikely to tighten further unless stronger-than-expected wage gains accompany stronger-than-expected job gains.

   3. Crude Oil Prices Fall But Could Quickly Change

      Although crude oil prices fell by almost 9% last week, there is a possibility that the situation could quickly change due to the renewed conflict in the Middle East. Hamas’ unexpected attack on Israel, and Israel’s response of declaring war, could lead to a larger regional conflict. Israel may target Iran, which has a history of financing and supporting Hamas, in retaliation, which could lead to an escalation that could disrupt the global supply of crude oil. Even without further escalation, investors are likely to factor in higher risk premia across the energy sector and differentiate between countries and regions based on their net energy profile.

What Happened Last Week?

Here is a recap of the top things that happened last week:

• Stronger economic data and domestic political turmoil led to a resumption of the bond market sell-off.
• Stocks rebounded as a robust jobs report indicated a normalization in the labor market.
• A sell-off in crude oil due to volatility hit energy stocks but heightened geopolitical risk in the Middle East is expected to reverse the trend.

What We’re Watching This Week

Here is a recap of what we’re watching for this week:

• CPI data for September is the highlight; Fed speakers to weigh in.
• On Friday, the third quarter earnings season will begin with large banks taking the lead.
• Investors are monitoring for Israeli retaliation to the weekend’s surprise attack. A targeting of Iran is a significant risk for markets.

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