Daily: Resilient growth should steady markets

Key arguments

• Resilient growth and low unemployment claims support the view that the economy is on solid footing, allowing equities to withstand moderately higher yields.
• Underlying inflation is moderating: three-month annualized core PCE fell to 2.05%, though the ISM prices-paid jump to 77.9 flags a risk.
• Recent Fed commentary is more patient, with Jefferson, Bowman and Williams stressing no urgency; UBS sees one more hike in December, not an extended cycle.
• UBS recommends broad sector and regional diversification to capture further equity gains while managing concentration risk.

Corresponding source evidence

1. The 10-year Treasury yield initially climbed to 5.34%, its highest intraday level since 2002, after manufacturing activity remained firmly in expansion and initial unemployment claims fell to a 10-week low. · 2002
2. The yield subsequently reversed course and ended around 4 basis points lower at 5.24%, as comments from senior Fed officials indicated that policymakers were not in a hurry to raise rates again.
3. But we think employment conditions, the broader inflation trend, and a more patient Fed should enable equities to withstand moderately higher rates.