Stocks sold off in the first week of October as we saw US Treasury rates move sharply higher and the labor market slowdown in September. The 10-yr US Treasury, a key interest rate in the financial world increased sharply, reaching a 7-year high. Raising interest rates can be good for savers, but could also suggest we could be on the verge on higher inflation. For the government budget, higher interest rates increase borrowing costs. The government has used a lot of short-term bonds to finance spending over the last 10 years. This will cost the government more money as bonds mature and have to be reissued at higher rates. For the week, the Dow was down slightly while the S&P 500 was down 1.0%.
The September jobs report came in well below estimates with the US economy adding 134k net new jobs versus a 185k consensus estimate. This is the weakest jobs report since last September. The jobs figures for July and August were revised higher by a total of 87k jobs, lessening the weakness in the September report. The unemployment rate declined to a 50-year low 3.7%. Wages increased at a 2.8% annualized rate. Read More
Amazon announced this week it was raising its company-wide minimum wage to $15/hour. The headline sounds good, but the full story is less clear. While $15/hour has been a hot button issue in politics, and Amazon has faced plenty of negative political backlash from all sides, this move seems more designed to look good than actually reward workers. As part of the increase, Amazon is eliminating incentive bonuses and stock option awards for hourly employees. The company claims total wages will increase, but some top hourly employees will likely see a reduction in pay as the bonuses go away. Workers already making over $15/hr has also voiced their displeasure. Those workers are receiving a simple $1/hr increase in pay, while new workers, making $10-11/hr, are receiving 40-50% increases. In addition to a good headline, I’m guessing that Amazon believes a higher minimum wage will help them attract warehouse workers better than the potential for incentive bonuses and stock grants. With the unemployment rate currently at 3.7% and the important holiday shopping/shipping season approaching, competition for labor is intense and Amazon felt this was necessary to attract the workers it needs. Read More
Oil increased this week, gaining 1.0% to close at $74.32/barrel. The yield on the 10-yr Treasury moved sharply higher, closing at 3.24% from 3.06% last week. The average rate on a 30-yr fixed rate mortgage moved lower to 4.71%, from 4.72% last week.