Stocks ended Friday mostly lower as investors reacted to a temporary fix to the debt ceiling and September job growth that was much lower than expected.
Tether investors, meanwhile, searched for billions of missing dollars. Additionally, Friday was a busy day for IPOs, with Cognition Therapeutics (CGTX), IsoPlexis (ISO), and Pyxis Oncology (PYXS) all making their debut on the Nasdaq.
Crypto markets were calm Friday after reports came out that Tether - the blockchain’s largest stablecoin by market cap - could be backed by less than the $1 per Tether promised by co-founder by former child actor Brock Pierce who famously missed a penalty shot in The Mighty Ducks.
However, Tether has issued 48 billion coins since the start of the year, bringing the total amount of coins to 69 billion. The company has consistently said it has the assets, but has declined to specify what, or where they are, leaving the matter open to speculation.
Employment Situation Report
The Employment Situation Report was one of the most notable events this week as the Federal Reserve has said it is watching it to make decisions about both the timing of tapering asset purchases, which still seem likely to begin in November.
Fed Chair Jerome Powell said that “it wouldn’t take a knockout, great, super-strong employment report” for the Fed to feel that the undefined “substantial further progress” had been met. Instead, the Fed wanted a “reasonably good employment report” that showed “accumulated progress”.
If you only read the numbers, you might be left with the impression that the report was bad. The economy added just 194,000 jobs in September compared to expectations for 450,000 could certainly lead you to that conclusion.
However, there were highlights and a potential error in the report, which shouldn’t be understated. The primary highlight here was that the employment-to-population ratio increased to 58.7%, nearing the pre-pandemic level of 61.1%. This is leaps and bounds better than the 51.3% pandemic low in April 2020.
The report says hiring “decreased by 144,000 in local government education and by 17,000 in state government education”. This resulted in a “decline after seasonal adjustments” due to “pandemic-related staffing fluctuations” that distorted the normal seasonal hiring and layoff schedule.
This error was predicted by Guy Lebas, the Chief Fixed Income Strategist at Janney Montgomery Scott. Lebas later tweeted that the headline number could have been off by as much as 200,000 jobs, which brings the miss much closer to the consensus estimates.
Read more on the report here.
Debt Ceiling
The other main story that investors navigated this week negotiations about whether the Senate would raise the debt ceiling and prevent a possible default on U.S. debt obligations. Thankfully, they did. Though, a larger raise to the debt ceiling would have been appreciated as the eventual "solution" serves only to set up another battle in early December.
The nearing of the date sparked a lot of debate as to whether the debt ceiling should be suspended as happened on three separate occasions during the Trump administration, all of which were bi-partisan.
However, this time around now-Senate Minority Leader Mitch McConnell and the rest of the Republican party decided it was better to rent a high-horse and pretend to ride it around while potentially crashing the fragile global economy and skimping out on payments to government workers, veterans benefits, and Social Security checks than maintaining the U.S.’s reputation as a reliable country to lend money to.
This led many economists and investors alike to push for the minting of a $1 trillion dollar coin that the Treasury Department could use to repurchase Treasury bonds from the Federal Reserve, thus freeing up additional borrowing capacity.
The idea seems to have been initially floated years ago by attorney Carlos Mucha, who said the idea came to him from a Wall Street Journal article that wrote about several people gaming the frequent-flyer miles point system by purchasing coins from the U.S. Mint with a credit card and then depositing those coins at a bank to pay off their debt. Essentially racking points up for free.
While using things that many view as "gimmicks" may not be the best way to manage the U.S.’s financial system, , it’s definitely better than allowing Senators to potentially tank the global economy because their party isn’t currently occupying the White House.
Anyways, back to the market. Stocks finished the week up as the S&P 500 added 0.79%, the Nasdaq rose 0.09%, and the Dow added 1.22%. The Russell 2000 lost 0.3% for the week.
