Weekly Macro Minute

GuideStone Reflections

Therefore, since we also have such a large cloud of witnesses surrounding us, let us lay aside every hindrance and the sin that so easily ensnares us. Let us run with endurance the race that lies before us…

Hebrews 12:1 (CSB)

Hebrews 11 is popularly known as the “Hall of Faith.” The author hops through biblical history, giving us a snapshot of the lives of the faithful Old Testament saints. Here, he reminds us that they are now with the Lord, urging us on as we “run our race.”

Attend any track meet, and you’ll spot runners milling around in tracksuits or sweats, waiting for their race to begin. But when the time comes, they quickly doff those clothes in favor of light and airy shirts and shorts. Tracksuits and sweats are perfectly fine clothes to wear, but those good things become hindrances when running the race.

In that same way, many things in our life are good in themselves, but they can become hindrances as we run for Christ. There’s nothing wrong with entertainment. Hobbies and sports can provide a much-needed break. We need jobs to make a living. Cell phones, social media and the internet are handy for keeping up with what's happening around us. But they all have the potential to be hindrances in our race for Christ.

If these things crowd out Bible reading, prayer and worship, they’ve become hindrances. If we don’t have time to fellowship or serve with other saints but still manage to squeeze in time for these other things, they’ve become hindrances. It may be time to lay them aside. Jesus set aside the glory of heaven to die for us. Surely, we can set aside some of our good things on earth to live for him.

This week, ask yourself what might be some of the “good” things in your life that are hindering your race.

In the Economy

As widely expected, the Federal Open Market Committee (FOMC) lifted the federal funds rate for the fourth consecutive time by 75 basis points on Wednesday. Initially, markets turned optimistic for a pivot as the policy statement language noted that officials would “take into account cumulative tightening” and “lags.” However, Chairman Powell quickly dashed all hopes in the press conference when he pointed out that the Federal Reserve “still has a way to go to reach sufficiently restrictive levels” and advised it is “very premature” to discuss pausing rate hikes. Furthermore, he advised that the terminal rate will likely be higher than previously thought (the last dot plot point showed 4.6%, on average). The FOMC appears to be pointing to a terminal rate around, or moderately above, 5%. The Treasury markets adjusted accordingly while stocks fell 2.5% on the day. Currently, federal funds futures point to a new high terminal rate of 5.10%, expected to peak in June of next year. We believe these higher rates will be sufficient to engineer a recession, and the market has yet to price in the inevitable decline in earnings growth that will occur.

This week's non-farm payrolls rose 261K, well above the consensus forecast for 193K, but the weakest gain since December 2020. The strong jobs report shows that firms continue to hire following the COVID shutdown losses, and this re-staffing process doesn't yet appear complete for pandemic-hit industries like health care, restaurants, travel and accommodation. The Job Openings and Labor Turnover Survey (JOLTS) numbers released last week also confirmed this as job openings surged to nearly two jobs for every unemployed person. The unemployment report was weaker, ticking up 0.2% to 3.7%. Still, the Fed believes the neutral jobless rate is 4.25%, so we remain well below levels we need to see to signal a Fed pivot. Average hourly earnings ticked up to a 6-month run rate of 4.6% – off the February high of 5.9% – but still too high for the Fed. The labor force participation rate ticked down 0.1%, and this stagnating labor supply may make it harder to cool wage growth.

Market volatility may pick up around this week’s mid-term elections. Historically, stocks have risen post-midterms as the uncertainty of the election results dissipated. However, given the impact of Fed tightening and the strong October stock rally, we may see a different outcome this cycle.

Developed European stocks bested U.S. peers and rose for the third week running, as overseas central banks generally diverged from the U.S. in signaling a curb in the pace of rate increases. In particular, the Bank of England tightened by 75 basis points but pushed back against the scale of future increases relative to market expectations given the severe economic pressures it’s facing. Year-over-year inflation in the eurozone accelerated to 10.7% in October on rising energy and food prices. An early estimate of third-quarter GDP for the eurozone showed a 0.2% gain.

Japan’s stock market gained modestly on the week, and the Bank of Japan maintained its aggressive policy stance but hinted it might reassess yield curve control in the future should inflation continue to exceed the 2% target. China’s stock markets had a speculative frenzy as several reports suggested China was preparing to move away from a zero-COVID policy. China has since pushed back on these reports, however. Official Purchasing Managers’ Index (PMI) readings signaled contraction for China in the services and manufacturing sectors, as a weak economy continues to deteriorate due to severe COVID lockdowns and a property sector in free-fall.

Across the Markets

• U.S. equity markets fell thanks to a hawkish Fed, with the S&P 500® Index down 3.4% for the week.
• Treasuries increased across the curve, but short-term yields generally rose more.
• The 2-10 spread inversion hit a new 40+ year high of 58 basis points during the week and closed with a 50-basis point spread.
• Crude oil climbed notably for a second week to end at $92.61/bbl for WTI, with Brent at $98.57 (near the triple-digit territory last seen in July).
• The Atlanta Fed’s GDPNow model estimate for U.S. real GDP growth for the fourth quarter of 2022 moved up to a robust 3.6% level in an early estimate. However, consensus estimates are much lower and tracking at a broad range of -1.25% to +1.75%.