The market is a little tense, but there is lots of good stuff going on. The market is holding up and bonds are bouncing in a tight range.
The action in the Russell 2000 is very compelling.
Strong Economic Data
The October ISM Services index leaped to 66.7 from 61.9 - the highest on record. Respondents emphasized that supply chain issues, logistics, and raw materials pricing continue to be a problem.
Moreover, employee retention is a major challenge.
Highlights include:
- New orders climbed to 69.7 from 63.5
- Production soared to 69.8 from 62.3
- Supplier delivery times rose to 75.7 from 68.8
- Employment slipped to 51.6 from 53.0
- Prices paid kept climbing – hitting 82.9 from 77.5
To see the chart, click here.
This reflects the unusual challenge facing the Federal Reserve. Strong demand and persistent inflation now, but what happens when the economy cools, and what happens if the stock market cools?
We will know more at 2PM with the release of the FOMC decision and 2:30 press conference.
Persistent Inflation
I don’t see three rate hikes, but there are serious issues, including higher rents and wages.
This morning, striking workers Deere & Co (DE) turned down a sweetened deal that would have amounted to a 30% increase in pay, along with an $8,500 bonus, and paid retiring workers between $35,000 and $50,000 bonuses.
Deere Contract Offer | First Offer | Second Offer |
Year One Raise | 5-6% | 10% |
Year three raise | 3% | 5% |
Year five raise | 3% | 5% |
Bonus | $3,500 | $8,500 |
No Vote | 90% | 55% |
These workers point to the 160% increase in CEO pay and 17% hike in the company’s dividend. These issues, and others, have always been worker grievances but now they are empowered to take action. I continue to say to folks, get paid, but don’t overplay your hand.