Markets Applaud Inflation Drop, Jobless Claims Move Higher, Mortgage Rates Head Back Up
Markets Applaud Inflation Drop
Stock markets reacted with enthusiasm to Thursday’s Labor Department report of lowered annual inflation for a fourth consecutive month as the October rate of 7.7% dropped from the prior month’s 8.2%.
The Dow Jones Industrial Average climbed more than 1,200 points for a 3.7% gain for the day, even as inflation remained near 40-year highs. The S&P 500 rose nearly 4,000 points for a 5.5% increase, its biggest jump since April 2020. Even the Nasdaq Composite Index, filled with several recently beleaguered tech company stocks, had its best day since March 2020 with a 7.35% rise. Shares of Amazon were up 12.2%, Facebook parent Meta rose 10%, and Apple and Microsoft were up more than 8%.
Housing continues to loom large in rising costs, as the government reported shelter accounted for more than half of the latest increase of 0.4% in overall consumer prices for the past month. For the past year, big contributors to inflation included energy with a 17.6% increase, and food with a 10.9% jump.
The lower inflation rate apparently gave markets confidence that the Federal Reserve might slow down the pace of interest rate hikes, though the actual Fed response won't be known for several weeks.
Exencial Wealth Chief Investment Officer Tim Courtney told CNBC that with the October drop in the consumer price index, “the market is now betting pretty clearly that they think the interest rate rises are coming close to an end,” giving a particular boost on Thursday to stocks that are most sensitive to interest rates, especially tech stocks.
Jobless Claims Rise Slightly
Initial claims for unemployment insurance stayed historically low but rose by a slight 7,000 from the prior week, reaching 225,000 for the week ended Nov. 5, the Labor Department reported Thursday.
The four-week moving average was 218,750, a decline of 250 from the prior week in a climate where the unemployment rate remained around 50-year lows at 3.7% for October.
The total of continuing claims in all programs, tracked on a more delayed basis, was approximately 1.3 million for the week ended Oct. 22. That was up 12,522 from the prior week but well below the approximately 2.6 million in the comparable week of 2021.
Despite some large, high-profile layoffs in recent weeks at Twitter and Facebook, job cuts are generally infrequent in most industries as many positions go unfilled. That trend is being put to the test by rising interest rates as the Federal Reserve looks to tame inflation, which some analysts predict will send the economy into a recession that necessitates job reductions spurred by lower demand for goods and services.
Mortgage Rates Head Back Up
After taking a rare recent dip last week, mortgage rates moved upward this week as the average for 30-year, fixed-rate loans was back above 7% as of Thursday, the government-sponsored loan-backing agency Freddie Mac reported.
Freddie Mac’s weekly national lender survey showed 30-year loans averaging 7.08%, up from 6.95% a week earlier and 2.98% a year earlier. Fifteen-year, fixed-rate loans averaged 6.38%, up from 6.29% a week earlier and 2.27% in the comparable week of 2021.
“As the housing market adjusts to rapidly tightening monetary policy, mortgage rates again surpassed 7%,” Freddie Mac Chief Economist Sam Khater said in a statement. “The housing market is the most interest-rate-sensitive segment of the economy, and the impact rates have on homebuyers continues to evolve.”
That impact now includes slowing sales of single-family homes. Mortgage rates remain at 20-year highs, a trend that along with rising prices affects apartment demand by keeping prospective buyers in the rental pool as they wait for conditions to improve.