Pushing Back on the Pivot

 

No images? Click here       By Alex Eule  |  Thursday, October 6 Fed Watch. The week began with investors increasingly confident about a pivot from the Federal Reserve. The narrative -- or fantasy -- was that the Fed was close to wrapping up its rate hikes as the economy softened: Weak economic data this week would confirm the idea, with a not-great jobs report capping off the market's celebration on Friday. The dream pushed stocks up a combined 6% on Monday and Tuesday.  But the data points haven't really cooperated. Yesterday, a private payrolls report from ADP was better than expected and today new jobless claims remained fairly low, suggesting the September jobs number tomorrow may be too strong to confirm the pivot hopes.  We could still be surprised, of course, but investors spent today preparing for disappointment. If the economy -- and the labor market specifically -- remain strong the Fed may have no choice but to keep its rate hikes going. The S&P 500 fell 1% today, with the Nasdaq Composite off 0.7%. The Dow Jones Industrial Average shed 347 points, or 1.15%.  It's not just the coming jobs report. Fed officials continue to remind the market that they remain serious about reining in inflation through tight monetary policies. “Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause," Minneapolis Federal Reserve chief Neel Kashkari said at a conference on Thursday. "I think we’re quite a ways away from a pause.” Kashkari currently doesn't have a vote on the Federal Open Market Committee, but he will next year.  Meanwhile, Fed Governor Christopher J. Waller, a current voting member of the FOMC, poured more cold water on any kind of pivot during a speech at the University of Kentucky, saying that "inflation is far from the FOMC's goal and not likely to fall quickly." And he cautioned about reading too much into the payrolls data. "I don't expect tomorrow's jobs report to alter my view that we should be focused 100 percent on reducing inflation." The message from the fed is clear: inflation, inflation, inflation. Earlier this week, investors weren't listening. Now the Fed is raising the volume, and that's a growing risk to stocks.  New Fed Governor Lisa Cook added to the chorus during a speech at the Peterson Institute for International Economics in Washington, D.C, though she arguably left the door open for a pause in hikes: “In the current situation, with risks to inflation forecasts skewed to the upside, I believe policy judgments must be based on whether and when we see inflation actually falling in the data, rather than just in forecasts.” The bullish translation? So you're saying there's a chance. DJIA: -1.15% to 29,926.94 S&P 500: -1.02% to 3,744.52 Nasdaq: -0.68% to 11,073.31 The Hot Stock: DexCom +4.5% The Biggest Loser: Carnival -6.1%   Best Sector: Energy +1.8% Worst Sector: Utilities -3.3% CONTENT FROM MFS INVESTMENT MANAGEMENT Institutional investors, are you seeking returns in today's credit market? See how we strive to generate fixed income returns by exploiting inefficient bond markets. Explore Now     Tesla's Upgrade Tesla cars get rave reviews from drivers. The stock is still a favorite on Wall Street. And the CEO is the world's richest man. Tesla is surrounded by superlatives -- with one exception. The company's debt has long been considered "junk" by bond rating agencies.  Now even that's changing. Today, S&P Global bumped Tesla's debt rating from BB+ to BBB. That takes the the company from junk to investment grade. And while this is all largely academic -- the company has far more cash than debt on its balance sheet -- it brings a new level of credibility to the company, and it could lower the cost of future borrowings. In its upgrade note, S&P Global writes:  We now view Tesla's credit profile more favorably because it continues to demonstrate market leadership in electric vehicles (EVs), with solid manufacturing efficiency that supports strong EBITDA [profit] margins and sustained positive free operating cash flow, above our previously established upside triggers. Barron's Al Root writes that "The upgrade is an acknowledgment by a major bond rating organization that Tesla is a stable entity. It’s one small vote of confidence in the company." Not everyone is raving about Tesla's debt yet. Al notes that Moody's still rates Tesla at junk.  Tesla stock rose on the debt upgrade news, but the stock still finished the day down 1.1%. Read Al's full story here.  The Calendar The U.S. Bureau of Labor Statistics releases the jobs report for September. The consensus estimate is for an increase of 250,000 in nonfarm payrolls, after a gain of 315,000 in August. The unemployment rate is expected to remain unchanged at 3.7%. What We're Reading Today ·        Interest Rates Have Hammered TIPS. Here's a Way to Make It Better. ·        Musk's Deal for Twitter Could Still Collapse. Watch the Banks. ·        MSG Sports to Pay Special Dividend and Buy Back Stock. But It Won't Sell Knicks or Rangers. ·        AMD's Revenue Misses by a Mile. The Stock Is Falling. ·        Don't Like Jim Cramer's Stock Calls? This ETF Bets Against 'Mad Money' Host.   Join Barron’s Live at noon Eastern time tomorrow. Europeans are bracing for a difficult winter and economic pain after Russia cut energy exports to the continent. Join as Barron's senior managing editor Lauren R. Rublin and energy experts from McCloskey by OPIS examine the impact on consumers in Europe and the U.S., how the energy ecosystem is adapting, and what the absence of Russian fuel means for the future of nuclear, coal, renewables, and natural gas. Weekdays at noon ET, Barron's Live features timely and actionable insights for investors. Exclusively for Barron’s subscribers, we give you behind-the-scenes conversations with the newsroom, connecting you with our editors and reporters covering the markets, the economy, and more. Sign up here.   BARRON'S PODCASTS Numbers by Barron's is three numbers you need to start your day in only two minutes. Subscribe now on iOS, Android or your podcast app. Have an Amazon Alexa device? Add us to your Flash Briefing or simply say, “Alexa, play Numbers by Barron’s podcast.”  Learn more about Numbers by Barron's and The Readback, our new weekly show. 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