October Jobs Report Could Be Catalyst for TLT, More ETFs
Employers are expected to have added just over 100,000 workers to October payrolls.
It’s a big week for corporate earnings, with five of the seven Mag-7 set to report their results— starting with Alphabet today.
But it’s also a big week for economic data. The highlight is the nonfarm payrolls report for October, scheduled for release on Friday.
The last labor report surprised investors when it showed stronger-than-expected job gains for September. That caused markets to quickly recalibrate the number of Fed rate cuts they see over the next year.
With fewer cuts expected, bond yields rose notably in the weeks following the September jobs report, pushing the 10-year Treasury yield to nearly 4.3% on Monday, up from 3.6% in September.
In turn, one of the most popular bond ETFs of the year, the iShares 20+ Year Treasury Bond ETF (TLT), sagged (bond yields and prices move inversely), wiping out its gains for the year.
What the Jobs Report Means for TLT, Other ETFs
Could this week’s jobs report ignite another big move?
Currently, economists expect that the Bureau of Labor Statistics will report that employers added 110,000 workers to their payrolls in October, less than half of the 254,000 they added in September.
However, the October number will be distorted by the impact of the two hurricanes that made landfall in the U.S. during the month.
Some economists, like those at Bloomberg, believe that the government could even report net job losses for October.
“We expect October’s US payrolls report to show the first negative jobs print since December 2020, well below the consensus forecast of [110k]. Much of the weakness is due to weather-related disruptions, but we also see a slowdown in cyclical sectors,” they said.
The hurricane impact will make it tricky for investors and policy makers to gauge the true health of the U.S. labor market ahead of the Fed’s next rate decision next week.
The pricing of fed funds futures suggests that it’s a near certainty that the central bank will slash rates by 25 basis points on Thursday, Nov. 7.
It will likely take a significant deviation in the jobs figures versus the consensus for the Fed to do anything other than a quarter point rate cut.
In addition to the jobs report on Friday, data on GDP (Wednesday), inflation (Thursday) and manufacturing (Friday) could influence the Fed’s rate decision.
