Wall Street is higher this morning and this does come on the heels of New York Fed Williams calling for a rate cut.
Now we are looking at the probability of a rate cut at the December meeting climbing this morning to 73%.
Well, US job growth figures blew past expectations during the month of September, and we're seeing.
The numbers after a nearly seven week delay from the US government shutdown, non-farm payrolls rose by 119,000, the strongest gains since April.
But there's a catch.
Job growth in July and August were revised down by a combined 33,000 and the unemployment rate in the US ticking higher to 4.4%.
Now separately, weekly jobless claims held steady.
With 220,000 new filings, but continuing claims rose to their highest level since 2021.
Well joining me live this morning at the New York Stock Exchange is Jeff Roach, chief economist at LPL Financial.
Jeff, great to have you here.
A lot going on, so thank you so much for joining me.
Yes, you're welcome.
Thanks for being here.
Well, of course, the US economy, where do we actually stand right now?
Well, it is complicated, and what's interesting is, even if the government hadn't shut down, it still would be complicated.
So I think that's a key point.
I think investors are trying to understand, OK, where are we in the cycle?
I like to actually say it's not necessarily a cycle, it's a structural change that we need to think about.
I think you're right to highlight for your listeners that we had a decent September jobs report, but the revisions are very, very important.
I look at the 3 month moving average.
I often discount those month to month changes because it's so volatile, and I think it's, it's a little bit more clear that the labor market is slowing.
Hence, I think it is reasonable to suggest that the Fed cuts in December.
It's a little bit of a 50/50, perhaps not 50/50 anymore, a little bit better toward December, but I think you know, step back, it's about 2026.
That rate cutting campaign, I think will continue into next year, and that's important to remember.
Yeah, and 2026 is right around the corner.
We have about 19 days until the December Fed meeting, but since you mentioned next year, what are your expectations for the central banks?
So we do think that they'll continue to cut by the way our LPL research team will release our annual outlook in a couple more weeks and we kind of digest that and peel back the onion look in the details of this thing.
We do think that economic growth will slow to its lowest in Q1 of next year.
We think there are going to be some tailwinds to growth the latter half of 2026, but the good news is inflation will look a lot better for the Fed to say.
Yes, we can continue on this rate cutting campaign, probably not hit 3% but approach 3% by the end of next year.
And of course, while we look ahead to the December Fed meeting, there will be data points that we'll also be watching out for.
Unfortunately that jobs report coming on on December 16th won't be until after the December meeting, but we will be getting the Beige book as well.
So what if you're paying attention between now and December 10th?
Well, tracking what businesses are doing and thinking about with capital expenditures, there's a couple of economic surveys that cover that, whether it's from private sources or from separate Federal Reserve district banks.
I think that's going to be really key.
So we know the labor market is cooling.
It's possible that that might eventually roll into consumer spending slowing a little bit.
But it's the capE story on the business side that's going to be very, very important for 2026.
In the near, near term, looking at holiday sales, the expectations are that it should be a pretty decent holiday sales season again this year.
And while I have you here, we're here at the New York Stock Exchange, so of course we're paying attention to the equity averages and yesterday we saw a lot of volatility following that jobs report and Nvidia earnings.
But as we stand now, we're still seeing percentage gains, double digit percentage gains, but we're seeing volatility across other assets whether we're looking at precious metals or even the crypto market.
So what do you make of everything that's happening and how do you expect it to all shake out?
Well, in addition to some of the challenges and just the uncertainties I mentioned domestically, the international story is equally a little bit unclear, and I think that is rolling into domestic markets.
So you think about the stimulus that might come out from Japan.
As well as China, so the Prime Minister did highlight a couple of things out of Japan, a lot of spending.
It's possible that they can't afford that kind of level of spending and stimulus, but that's, that's very much rolling into some of the uncertainty in the domestic markets.
Just one more thing to kind of think about in the very, very.
Near term Nvidia's earnings surprise to the upside.
I think we're very early in the innings in this game for AI.
Think about the low adoption rates in the grand scheme of things for your small and medium sized firms.
I think the runway is still pretty long for the AI story to to take off, as it were.
Yeah, and Jeff, speaking of which, when we take a step back and look at the sectors of the S&P 500 that are seeing those double digit percentage gains, it's not surprising given the growth that we've seen in AI as well as those AI names and especially some of those deals that are happening between the US and other countries overseas.
But what do you make of some of the other gains that we've been seeing in recent weeks, including healthcare as well as energy.
Right, so what's what's nice, I think you think about the challenges on the services side for inflation.
You mentioned energy.
I think the fact that energy prices have stayed so low for so long, that's at least one factor of the many that roll into what investors care about.
That's not necessarily a problem like we've seen in the last few months.
I think back to the question thinking about what sectors are poised to do well for 2026, I think as the Fed.
Continues to communicate.
We can continue on our rate cutting campaign.
That's going to help some of those more interest rate sensitive sectors, and I think there should be, even though valuations are hot, I think 2026 will continue to be a good year.
We'll skirt recession, low growth, but we'll continue to see some modest gains here.
Yeah, and we have about 60 seconds here.
So for Americans who are watching this right now and asking what does this actually mean for us on a day to day basis, what would you tell them, Jeff?
Well, what does it mean practically?
It's interesting thinking about it's a very bifurcated economy.
I think that's very important to remember on Main Street.
Main Street's not Wall Street.
Wall Street is not Main Street, but you still have a section of the economy that are struggling a little more than the other half when we talk about a K-shaped economy for our listeners, make sure they understand what this means.
It's just illustrating that top part of the letter.
Certain aspects of the economy are doing very well and recovered very well and continue to grow.
Other parts of that letter downward sloping suggesting there's still some pressures, and I think that's the right way to think about it and that's one of the reasons why we think the Fed can continue to cut in 2026.
OK, Jeff, thank you so much for joining me here at the New York Stock Exchange, and thank you so much for waiting again.
Thank you.
