Baker Market Update 2026-11-06

Nothing brings people together like a Friday, especially after a week of commotion at the polls and in the financial markets. However, while the light at the end of the tunnel may be appearing for many as we approach the weekend, some corners of the financial markets are still far from it.

On Monday morning, the ISM Manufacturing PMI came in at 55.5 for the month of October, which was 1.0 above both expectations and the prior reading. The PMI is a diffusion index, meaning readings above 50 indicate growth, so the latest print suggests manufacturing activity remains firmly in expansionary territory. That same morning, preliminary figures from the U.S. Census Bureau told a softer story than the PMI. Construction spending fell 1.9% MoM in September, 2.2 percentage points below survey estimates. The decline was concentrated in private residential construction, which slipped to a seasonally adjusted annual rate of $848.8 billion, down from a revised $898.0 billion in August.

The following day, the finalized September durable goods report showed orders rose 1.9%, revised up 0.1 percentage point from the preliminary reading. The upward revision suggests factory momentum held up slightly better than first reported, with core capital goods orders, which exclude defense and aircraft, also revised up to 0.6% from 0.5%.

On Wednesday, MBA mortgage applications for the last week of October saw a modest contraction relative to the prior week, decreasing 1.2% on a seasonally adjusted basis. While the weekly headline figure tends to be noisy, the commentary in the report offered some useful insight into the mortgage market. The MBA’s chief economist, Mike Fratantoni, noted that although the 30-year mortgage rate declined to 7.3% during the reference period, activity is still slow, and more borrowers are choosing ARMs to lower their initial payments. ISM Services hinted at a services sector that is still growing but possibly decelerating, with the index now below its February peak of 56.1, which came just before the onset of the U.S.-Iran conflict. October’s print came in at 54.5, below September’s reading of 54.9 and expectations of 54.8.

On Thursday, equity markets sold off sharply, led by AI and semiconductor stocks, while Treasury yields fell in tandem. The 2-year and 10-year yields declined 11.7bps and 5.3bps, respectively, a relatively orderly move compared with the tech-heavy Nasdaq 100, which fell 6.36% in its worst session since March 2020.

Bond yields are rising this morning after the Bureau of Labor Statistics released October’s Employment Situation report. Nonfarm payrolls rose 165K, more than double the 70K economists expected, and the prior two months were revised up by a combined 84K. The unemployment rate fell to 4.1% from 4.2% as the labor force grew, and average hourly earnings rose 0.4% MoM and 3.1% YoY, above expectations of 0.3% and 2.9%, respectively. After the Fed held rates steady on October 28, this report may give policymakers more room to justify another hike in December. As of this writing, Fed Funds futures are pricing in a 77.7% probability of a 25bps hike at the Fed’s next meeting on December 9.

Have a great weekend everyone!