Welcome to the monthly market update from Midland Wealth Management. I’m Chris Zabel, Portfolio Manager. Today, I wanted to take a few moments to share the Investment Team’s views regarding the economy and financial markets.

Labor Market/Economic Update

September’s jobs numbers were released following the culmination of the longest-ever US government shutdown. Payrolls grew by 119,000 jobs, well above expectations of 53,000, while August payrolls were revised lower, resulting in a contraction of 4,000. The unemployment rate edged up 0.1% to 4.4%, due in large part to an uptick in labor force participation.

Despite a surprisingly strong September jobs number, there are signs that the labor market is cooling. The ADP National Employment Report stated private companies added 42,000 jobs in October; however, small and mid-sized companies had shed 15,000 and 25,000 jobs, respectively. The continuing cooling of the labor market should give the Fed more confidence in continuing to loosen policy.

There is some anecdotal evidence that consumers may be retrenching as Home Depot, Target, and Walmart have pointed to sluggish sales in their most recent earnings calls. This is especially true of lower-income earners and those under the age of 45. Concerns over a tightening in labor market conditions and the headwinds caused by prices that are still high relative to recent history has contributed to a weakening in consumer confidence and expectations, which may further act to curtail spending this holiday season.

Fed Policy

The Federal Open Market Committee minutes for October revealed some disagreements amongst Federal Reserve officials on the path forward for interest rate policy. The tone of the minutes turned more defensive and risk-balanced when compared to September’s minutes. Several officials supported further lowering the target range for the federal funds rate in December, while many officials have suggested that it would be appropriate to keep the target rate unchanged. At the time of this update, market-based measures of forward expectations are implying a full quarter-point cut at December’s meeting. This would bring the target range to 3.75 – 4.00%.

Equity/Fixed Income Markets

The US equity markets experienced above-average volatility in November, driven by concerns over the circular nature of AI Capex spending, the overall level of tech valuations, and some dissenting comments from FOMC members. 

Despite this, markets rallied in the last week of the month, with the S&P 500 ending higher by 0.25%.

There was some broadening of returns this month as small- and mid-cap outperformed large-cap, with the S&P 600 and S&P 400 up 2.05% and 2.65%, respectively.

Treasuries were flat throughout the first half of the month but did fall the second half of the month, reflecting the labor market concerns alluded to earlier. The 10-year Treasury dropped below 4% in the last week, before ending the month near 4.01%.

Outlook

Markets found support as expectations for a December cut rose sharply and there were less concerns about elevated large tech valuations and AI bubble fears. The volatility in November exposes how the concentration of returns in large-cap technology companies can be a catalyst for continued positive performance, but also the fragility therein. Over short time horizons, sentiments can swing in both positive and negative directions and become detached from fundamentals.

As macroeconomic data delayed by the government shutdown begins to trickle in, December should present the Investment Team with more insights into how the economy is evolving. This data will further inform policy decision-making and may result in the team taking action to adjust portfolio positioning. Some of this data includes the Personal Consumption Expenditure price index, new jobs reporting, and various reports on consumer behavior. As always, the team meets frequently to discuss these elements and many others to formulate strategy going forward.

Thanks again for joining me for this month’s update. As always, please contact your advisor or relationship manager with any questions you may have.