Investors are tightening their neck braces as US stocks soar upwards, plummet back down and then do it all over. Stock market volatility is at its bumpiest level since July.
The whiplash-inducing ride comes as conflicting data paints a cloudy picture about the state of the US economy. Investors have been reading economic reports as tea leaves, searching for signs that the Federal Reserve could soon pivot to a slower pace of rate hikes to fight inflation, and reacting accordingly.
What's happening: The S&P 500 just printed its worst performance through the first nine months of any year since 2002. September was particularly rough, with all three major US indexes falling into a bear market.
October brought more vertigo as stocks quickly recovered. The S&P 500 gained 5.7% on Monday and Tuesday, its biggest two-day increase since April 2020. On Wednesday, stocks plunged once more before quickly bouncing back slightly. They ended the day slightly lower.
This week's swings correspond with two new data points that buoyed the possibility of a Fed pivot.
Markets surged on the news that the Reserve Bank of Australia raised interest rates by just a quarter of a percentage point on Tuesday. That's half the amount analysts had expected.
The move led to speculation that the Fed could jump on the bandwagon and dial back its own rates.
That seems unlikely. "We're starting to see some things the doves can hang their hat on, but I don't think it will be enough to stop another 75 basis-point move in November," wrote Neil Dutta at Renaissance Macro Research in a note Tuesday.
Then, September job vacancy numbers dropped sharply, falling below analyst expectations, according to Refinitiv data.
A weakening labor market puts downward pressure on wages and inflation. So while fewer job openings appear bad at face value, they indicate that the Fed's tightening regimen is working.
The Fed will see this as "an encouraging development," wrote analysts at Barclays, but they cautioned that it's just one piece of data among many. The labor market is still tight with about 1.7 job openings for every unemployed worker in the US.
The hope appeared to be fleeting, anyway. New private employment data on Wednesday by payroll services firm ADP suggested that the labor market isn't losing any steam. Businesses beat estimates with 208,000 jobs added in September. They added 185,000 jobs in August.
The disconnect: If it feels like we've been here before, it's because we have.
Pivot-friendly thinking helped fuel the bear market rally we saw in July and August. That didn't last, and markets crashed to hit new lows by early fall.
Fed officials have repeatedly said they plan to continue with their policy of elevated rate hikes and have publicly worried that markets refuse to listen to their messaging.
Panic and ecstasy are not investing strategies, and a blink is not a pivot.
What's next: Expect more volatility as investors digest the Bureau of Labor Statistics' latest unemployment data on Friday. The data measures the change in the number of people employed in September and is closely watched by the Fed. In this "good-means-bad" Fed world, an increase in unemployment will likely send stocks up.
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