Markets Brace for Jobs Data and Powell's Upcoming Speech

The past week saw U.S. equity markets displaying resilience amidst a backdrop of economic uncertainty. Investors remain vigilant as they await crucial economic indicators and central bank commentary.

The S&P 500 maintained its recent gains, closing the week near its all-time high at a level of 5,738. Tech-heavy Nasdaq 100 and small-cap Russell 2000 indices posted impressive gains of 2.5% and 2.3%, respectively.

Economic Indicators Paint a Mixed Picture

Despite the positive momentum in equities, economic data released this week presented a nuanced view of the U.S. economy:

• ISM Manufacturing Index at 47.2, remaining below 50 and indicating ongoing contraction in the sector

• Services Index stable at 51.5, showing modest expansion but hinting at slowing growth

• August 2024 inflation report showed Consumer Price Index (CPI) at 2.3% year-over-year, closer to the Fed's 2% target but still above it

These mixed signals underscore the delicate balance the Fed must strike between fostering growth and controlling inflation.

All Eyes on Upcoming Employment Data and Fed Chair's Speech

Market participants are eagerly anticipating two key events next week:

1. The release of September employment numbers

2. Federal Reserve Chairman Jerome Powell's speech

These events are expected to provide crucial insights into the Fed's monetary policy direction ahead of the November Federal Open Market Committee (FOMC) meeting.

Bond Markets Signal Inflation Concerns

While equity markets have shown strength, the bond market tells a different story. The yield on the 10-year U.S. Treasury has climbed to its highest level in 15 months, suggesting that bond investors are pricing in the possibility of persistent inflation. This divergence between equity and bond market sentiment highlights the complex economic landscape investors must navigate.

Funding Activity

• DirecTV and Dish are set to Merge to Create the largest US Pay-TV Provider with over 18 million subscribers

• OpenAI set to raise US$6.5bn in new funding round with investors like Softbank, Thrive Capital and Microsoft to potentially participate

Looking Ahead: Key Factors to Watch

As we move into October, investors should keep a close eye on:

1. Preparations for the November FOMC meeting

2. Ongoing geopolitical developments and their potential impact on global trade

3. Q3 earnings reports, which will start rolling in mid-October

The combination of high stock valuations, mixed economic signals, and political uncertainties could lead to increased market volatility in the coming months. Investors would be wise to maintain a diversified portfolio and stay informed about these key economic indicators and events.

While the Fed's recent actions have provided a boost to markets, the road ahead remains uncertain. As always, thorough research and careful consideration of risk tolerance are essential when making investment decisions in this complex economic environment.

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