Wall Street has become a rollercoaster ride as investors try to navigate through inflationary pressures, debt ceiling drama that everyone knows will eventually be resolved, and as global central banks start to deliver fastening tightening cycles. It is hard to turn bearish on US stocks as growth exceptionalism in 2022 is widely expected. Whipsaw Wednesday at one point had US stocks giving back the majority of yesterday’s gains as surging energy prices have spooked traders. The bond market saw inflationary fears intensify as the energy crisis was worsening, but a Russia to rescue helped thwart off the surge in natural gas prices.
Stocks are paring losses after Senate Majority Leader McConnell floated a short-term debt limit increase through November. This just kicks the can down the road and likely will lead to further fighting amongst progressive and conservative Democrats. If Mitch has his way, Biden’s economic plan will get delayed so much that they will have to wait till after mid-term elections. Democrats won’t let this drag on too much further. Wall Street still expects Biden’s economic plan to get finalized after it is slashed to something around the $2 trillion level.
Complicating global risk appetite is quicker than expected tightening from central banks. The energy crisis abroad has forced rate hikes from the RBNZ, National Bank of Poland, and Iceland’s central bank.
The ADP report was promising and will likely increase expectations for Friday’s nonfarm payroll report. Private payrolls rose by 568,000 jobs in September, the largest increase in three months, also beating the 430,000-consensus estimate. Good-producing jobs increased by 102,000 and Service-producing jumped 466,000.
ADP’s Chief Economist Richardson noted, “Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve, setting the stage for solid job gains in the coming months.”
If the labor market recovery takes off over the next couple of months, investors might price in a quick tapering, which should allow Treasury yields to make a run towards the highs seen at the end of March.
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