Interactive Brokers chief strategist Steve Sosnick joins the Morning Brief to discuss how September’s jobs report is impacting markets and how it may weigh on the Federal Reserve’s next interest rate decision. With stocks (^DJI,^GSPC, ^IXIC) under pressure Monday morning, Sosnick explains, “We’re giving back basically the last half hour of Friday.” September’s jobs data came in significantly higher than expected, sending major markets rallying in Friday’s trading session. However, as the print signaled resilience in the labor market, some investors started to worry that it may influence the Fed to hold off on any further interest rate cuts. “We do need to rethink the narrative that we’ve been coming in with… Forget soft landing, maybe we’re having no landing. That’s what this jobs report may be telling us,” Sosnick explains. “We hear about monetary policy being too restrictive. Based upon what? We have stocks at all-time highs. We have bond yields (^TYX, ^TNX, ^FVX) basically at multi-year lows, even after this pullback recently. “We have credit spreads very tight, meaning that corporations can borrow money if they need to. You have all kinds of risky assets doing well, you know, bitcoin (BTC-USD), etc. Where exactly is the restrictive monetary policy coming in?” He believes that the Fed’s 50-basis-point interest rate cut in September was a catch-up since the central bank didn’t ease rates in July. Sosnick notes that markets had priced in a soft landing and 7 to 8 interest rate cuts at the beginning of the year. However, he says, “it’s mathematically, essentially impossible at this point.” “The stock market didn’t care because the economy was good, earnings delivered. To me, the much bigger question becomes what happens next? What happens at the end of this week when earnings season starts? And into the next coming weeks, can the earnings that’s being priced in get delivered? Can we get double-digit earnings growth, which is priced into stocks right now, while having an economy weak enough to justify massive rate cuts?” Sosnick ponders. “I don’t see that happening. And so if I have to pick one, I’m always going to pick the stronger economy.”
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