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It’s been quite a ride in the markets this week, with both stocks and bonds bouncing around following the midterm elections along with sector rotation and a flight to quality against concerns surrounding the AI trade. To quickly recap, stocks rallied on Wednesday following the elections before reversing yesterday as tech stocks came under pressure. Concerns surrounding elevated valuations and whether the AI-driven rally may be losing momentum contributed to the broader selloff. Markets are attempting to stabilize this morning, with the Nasdaq rebounding while Treasury yields have moved higher.
This morning, we received the October jobs report from the BLS, which was a hot one. Nonfarm payrolls surged by 165k compared with expectations of just 70k. Looking at Bloomberg’s survey of economists, not one of the 79 surveyed projected a payroll gain as high as 165k. Also of interest, the prior two months were revised higher by a net 84k, a significant bump following last month’s downward revisions. Private payrolls increased by 159k, while manufacturing added 19k jobs. The closely watched three-month average increased to 137k, well above estimates of the pace needed to keep employment stable. Job creation was led by professional and business services, health care, and transportation and warehousing.
The household survey was also better than expected. The unemployment rate unexpectedly declined to 4.1% from 4.2%, while household employment increased by 463k, marking a third consecutive sizable gain. Labor-force participation edged higher to 61.9%, indicating the unemployment rate declined even as more people entered the labor force.
One area of concern was the broader underemployment rate, which increased to 7.9% from 7.6%. The number of people working part time for economic reasons increased by 339k to 4.8 million, suggesting some workers continue to have difficulty finding full-time employment or are seeing their hours reduced.
As strong as the number of jobs were, they already feel somewhat stale. The Fed is expected to raise rates in December, and today’s jobs data only strengthens the case for policymakers to remain focused on inflation. The big question for markets right now is how the recent AI selloff plays out and whether weakness in tech spreads into a deeper market decline. A significant tightening in financial conditions would present a new challenge for the Fed as it balances persistent inflation against weakening financial markets.
Next Tuesday should be a big day for markets and the Fed, as the BLS releases October CPI, providing the first major look at inflation for the month. The monthly readings will be especially important, with core CPI expected to slow to 0.3% following September’s hot 0.6% increase. Headline inflation is also expected to moderate to 0.2% from 0.3%. Year-over-year readings will not be available because the 2025 government shutdown prevented the BLS from collecting a full October 2025 CPI report. After today’s strong jobs numbers, another hot inflation reading would put more pressure on the Fed and keep yields elevated. Alternatively, a softer reading could provide some relief following what has been a volatile period for yields.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities Asset Management (HSAM). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS and/or HSAM as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. Sources available upon request.
HilltopSecurities Asset Management is an SEC-registered investment advisor. Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS and HSAM are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.