Weekly Macro Minute

GuideStone Reflections

But whoever keeps his word, truly in him the love of God is made complete.

1 John 2:5 (CSB)

There are two ways we can interpret the phrase “the love of God is made complete.” It could mean that the love God has for us is made perfect. But that would seem like God’s love is conditional on our behavior, not on His faithfulness. On the other hand, it could mean that the love we have for God is made perfect. Based on the context of the first two chapters of John’s letter, the second way is the best interpretation of the verse. The more we obey Him, the more our love for him grows to become perfect.

This sounds a little counter-intuitive at first. We tend to think that emotion drives action and how we feel determines what we do. But John is telling us that sometimes what we do shapes how we feel. In this case, our love for God grows the more we obey him.

Why would that be? Because when we obey him, we get out of the way of his Spirit working in us. We get to experience more of his goodness. And the more we see his goodness, the more we can’t help but love him more.

In the Economy

U.S. investors continued to fight the Federal Reserve creating extra volatility in markets. After a brutal September, the S&P 500^® Index started the week posting an impressive 5.6% gain in two days on the belief that a Fed pivot could be coming and that stocks were oversold. However, despite some signs of weakening economic data (see more below), the Fed members pushed against that misplaced optimism and abruptly ended the rally. A strong jobs report on Friday further squashed all hopes that the Fed was near a pivot, and equity markets sold off while yields spiked higher. Fed fund futures once again priced in a near certain fourth consecutive jumbo 75-basis point hike for November and a terminal funds rate near 4.7% in the first quarter of 2023. As we've said before, as long as the Fed remains intent on bringing down inflation to 2%, we likely will stay in a "good economic news is bad news" world because further tightening will continue. In addition, stocks still have not priced in the earnings declines associated with the coming recession.

Inflation worries resurfaced after OPEC+ announced a two million-barrel per day cut in target production on Wednesday, sending oil prices spiking higher and causing an angry Washington to talk of possible reprisals. While the effective cut will be minor, oil prices on the rise are causing additional angst domestically and abroad in countries where inflationary pressures continue to intensify.

While just off recent peaks, interest rate volatility and dollar strength remain at levels that historically have often led to financial crises in markets – a continued risk today for markets battling with questionable liquidity. As this continues, it will put downward pressure on risk assets and force foreign central banks to continue hiking rates.

Employment-related news made the biggest headlines this week. The Job Openings and Labor Turnover Survey (JOLTS) plunged over 1.1 million jobs in August for the largest decline on record, suggesting a softening in the labor market. However, Friday's Bureau of Labor jobs report showed a healthy 288K private sector job growth and a drop in the unemployment rate, matching the cycle low at 3.5% and giving the Fed the green light to continue aggressive tightening. While the September Institute of Supply Management (ISM) manufacturing index showed weakness – dropping to 50.9 and just above contraction territory – the services index showed continued strength at 56.7, near its pre-COVID level. The continued strength in services highlights the significant lag that aggressive monetary and fiscal policy from last year has in driving continued economic strength.

European stocks gained in tandem with the U.S. while bond yields also headed back toward recent highs as inflation remained a key policy worry. European Central Bank monetary policy meeting minutes show that support is strong for another 75-basis point hike this month. Japan's stock market enjoyed a substantial gain on the week but, like the U.S., ended the weak softer. Japan remains the outlier for developed economies as monetary policy remains aggressively stimulative, which appears to be having some effect. Core prices rose 2.8% year-over-year in September, the largest annual gain since 2014. Chinese markets were closed all week for the National Day holiday.

Across the Markets

• The S&P 500^® Index delivered a 1.5% gain in a volatile week.
• Energy was a standout performer – up almost 14% for the week as WTI rose to over $92 per bbl.
• Other outperformers included Industrials, Materials, Financials and Tech, while REITs, Utilities, Consumer Staples and Consumer Discretionary were among the underperformers.
• The 2-year and 10-year yields traded in a roughly 35-basis point range, ending the week with a 2-10 spread of -42 basis points.
• The Atlanta Fed's GDPNow model estimate for U.S. real GDP growth for the third quarter of 2022 saw a surprisingly further move higher to 2.9%, partly due to a stronger-than-expected employment report.