Jobs Market Clings to Strength While Housing Market Slips

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What's Happening Today

The labor market continues to surprise us: Jobless claims, or claims from people filing for unemployment for the first time, dropped by 12,000 to 214,000 last week, lower than expected. If the drop in claims is a precursor to what we can expect in the jobs market, then the Federal Reserve has a lot more work to do to slow the economy down.

While you would think that maximizing employment would be a good thing, right now the Fed is trying to bring inflation down, which means that we all have to go through some economic pain, including higher levels of unemployment. If a large share of workers remain employed and make more money, they'll keep spending, further fueling inflation.

But one thing that people aren't as interested in spending on is homes. Home sales dropped 1.5% in September from the month before, and remain 23.8% lower than last year. Higher mortgage rates (which currently sit at an average of 6.94% for a 30-year fixed-rate loan) are weighing on prospective buyers who are forced to pay more for a home, and more for the home loan, meaning that buyers might have to pay hundreds of thousands of dollars more to become a homeowner.

The median price for a single family home rose to $391,000, 8.1% higher than September of last year.

Stocks are rising this morning on the heels of stronger-than-expected earnings. Don't be too surprised if stocks go on a rollercoaster ride throughout this earning season, as investors respond to strengths and weaknesses in corporate reports.

- Kristin

Editors' Picks

Businesses Expect Economy to Weaken, Fed's Beige Book Says (The Wall Street Journal)

US Existing-Home Sales Extend Decline to Longest Since 2007 (Bloomberg)

Big Bargains Will Dominate the Holiday Season, But Shoppers May Not Be Sold (CNBC)

Mortgage Rates Inch Closer to 7%, Remain at 20-Year High (Yahoo Finance)

Mortgage History, Types, and Impact on the Economy (The Balance)

Financial Planning for College Students: What To Do Now (The Balance)

Do I Need a Financial Advisor? (The Balance)

Term of the Day

Sharpe Ratio

The Sharpe ratio measures the reward-to-variability rate of an investment by dividing the average risk-adjusted return by volatility. People can compare investments and assess the amount of risk that each one has per percentage point of return. This helps people better control their risk exposure. The higher the rate, the more returns the investment offers relative to the risks involved.

For example, suppose one investment manager has a portfolio return of 10%, while the second investment manager has a return of 14%. It would appear that the second investment manager has the better return. However, the Sharpe ratio for the first manager could be 1.8, and for the second manager it could be 0.7. The second manager is taking on more risk to generate the added return, which means there's also a higher risk of losses. Investors should consider their risk tolerance and the risk-adjusted return to determine whether an investment is worth the risk.

Off the Charts

Soaring mortgage rates have driven up borrowing costs and discouraged buying and selling, as sales of existing homes declined for a seventh straight month in September, hitting their lowest since May 2020.