Outlook

The US economy has defied recession expectations, with the latest data showing a continued positive performance. Despite the cumulative 525 basis points of Federal Reserve rate hikes, the economy may still not be out of the woods, but signs are pointing to another positive performance for third-quarter real GDP.

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The latest Consumer Price Index (CPI) report shows that inflation is at its swiftest pace in over a year, with a 0.6% month-over-month increase and a 3.7% year-over-year rise.

The three-month moving average of new hiring has been consistently lower this year, a trend that is not as concerning as it might seem when compared to the pre-COVID-19 era.

The labor market has exhibited remarkable resilience, but last week's employment data showed a cooling trend

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Labor momentum continues to decelerate, with job growth slowing significantly in August, implying that the inflation-ridden, red-hot services sector may finally be reaching supply and demand balance.

Stocks retreated on Monday after a strong rally the previous day, driven by a credit downgrade of a few banks and weak retail earnings. Despite this, stocks resumed their upward trend on Wednesday following the release of positive economic data.

As I've discussed quite a bit recently, the recent sell-off in the U.S. Treasury arena seems to underscore the point that the money and bond markets have finally 'come to the Fed' and accepted this higher-for-longer theme.

The recent rise in long-term yields and the health of the banking sector will be top of mind for investors while Powell and the committee consider how high and how long the fed funds rate should be.

Rising bond yields weighed on stocks throughout the week, as economic data pointed toward a potential need for further rate hikes. China's flailing economic recovery and warnings of potential bank downgrades added to the market's woes.