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» Fed Continues to Hike
» U.S. Economy Showing Mixed Signals


Prior to each recession in the U.S., the yield curve inverted when the 2-year Treasury yield exceeded the 10-year. This 2/10 inversion occurred earlier in the year, but this month the curve inverted even further when the 3-month Treasury yield exceeded the 10-year yield. So far, this is the most rapid rise in the effective Federal Funds rate of a rate tightening cycle that has occurred in the past 35 years. Investors are growing weary about the Feds ability to provide a “soft landing” to the U.S. economy by slowing growth without pushing it into a recession. According to Strategas, analyst consensus estimates for a recession occurring in late 2023 have risen to a probability of 60%.
One indicator used to measure the current economic environment is the University of Michigan Index of Consumer Sentiment. This survey asks 500 U.S. households different questions that focus on their personal financial situation, as well as their view of the economy over the near- and long-term. The October level of 59.9 increased from the September reading of 58.6. However, the year-to-date average remains at the lowest level since the survey’s inception back in 1961. On the surface, it appears that this is a bad thing. Some investors look at consumer sentiment from a contrarian point of view and interpret this as a bullish signal that the market could be at an inflection point.
It is no surprise that higher interest rates have caused a slowdown in the housing market. According to the Mortgage Bankers Association, mortgage demand reached a seven year low as the average rate for a 30-year mortgage reached 7.14%, making it the highest level since 2001. Non-farm payrolls added 261,000 jobs to the U.S. economy this month, beating expectations of 200,000. It is positive that the economy continues to add jobs, but this was the lowest increase since December2020. Unemployment ticked up slightly from 3.5% in September to 3.7%.
Service oriented companies continue to grow but are showing signs of a slowdown according to the latest ISM Non-Manufacturing PMI Survey. The index fell from 56.7 in September to a level of 54.4 in October. This marks the slowest expansion that the services industry has seen since May of 2020. ISM Manufacturing PMI slowed month over month from 50.9 in September to a level of 50.2. For both indices, ISM levels above 50 signal expansion, and a level below 50 signals a contraction.

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