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Week in Review

Week Ending: Friday, October 6, 2017

Recap & Commentary

Another week, another round of record highs for the S&P 500. Despite being overshadowed by the horrific shooting in Las Vegas, the S&P 500 opened the week with four consecutive record highs. Including the prior Thursday and Friday, the S&P recorded six consecutive record highs which fell just short of the all-time record of eight consecutive record highs set in June 1997. For the week the S&P 500 added over 1.0%, its fourth consecutive week of gains. Generally upbeat economic data and continued optimism surrounding the possibility of tax reform helped drive the gains.

On Wednesday, UK PM Theresa May gave a speech intended to reinforce support for her leadership. Instead it turned into a disaster, marred by a prankster who handed her the U.S. equivalent of a “pink slip”, an extended coughing fit which impacted much of the speech, and then finally letters on the backdrop behind her falling to the floor. The end result left May looking weak and ineffectual. The UK now finds itself in a difficult position. The country has just over 18 months to conclude its “Brexit” negotiations which are being guided by on of the weakest leaders in recent British history.  While many would like to see PM May step down or be forced out, the country can ill-afford the political crisis that would surely occur. Therefore it appears for the time being, that May will remain the PM, if only be default.

Friday’s unemployment report showed that the economy lost jobs for the first time in seven years. Recent hurricanes were largely to blame. Importantly, underlying trends in wage growth and the labor force participation rate, which reached their best levels in since 2009 and 2014, respectively suggested that employment fundamentals are continuing to improve. October’s data will be important for confirming these trends.

Economic Bullet Points

Data out of the factory sector was largely positive, both the ISM Mfg. Index and Factory Orders rose ahead of expectations. Strength in the former was broad based; new orders, production, and employment all exceptionally high. The highlight of the factory orders report was strength in capital goods, where both orders and shipments were contributors, a positive for the business investment component of GDP.

Data outside of the factory sector also looked positive. The ISM Non-Mfg. Index saw its highest reading in 3 years, orders and employment both important contributors. Construction Spending rose ahead of expectations in the month, but despite the monthly gain, the Y/Y rate is still more subdued at 2.9%. The International Trade deficit narrowed in the month, reflecting both a gain in exports and decline in imports.

The overall trend in the labor market remains positive despite the headline decline in nonfarm payrolls. The Employment Situation report indicated that payrolls were pulled lower by an over 100K drop in restaurants. So while the Department of Labor can’t quantify September’s hurricane effects, that is the likely cause of the disruption. The dip in payrolls aside, the unemployment rate fell to 4.2%, its lowest since 2001, the labor force participation rate rose to 63.1%, and avg. hourly earning rose 0.5% M/M. All of this will likely be cause for conversation amongst Fed members around the timing of further rate hikes. Jobless Claims were lower than expected in the week, indicating that impacts from the storms are already beginning to fade. 

 

Of Note

  • Through Friday, the S&P 500 had gone 332 days without a decline of –5% or more, second only to a 333-day rally that began in November 1994.
Market Indices Week of 10/6

S&P 500                       1.2%
Russell 2000               1.3%
MSCI EAFE                 -0.1%
MSCI EM                     2.0%
Commodities            -0.6%
Barclay’s Agg.            -0.2%
US Dollar Index          0.8%
10-Yr Yield                 2.37%
Oil ($/bl)                        $49
Gold ($/oz)                $1,262

 

The Week Ahead

  • NFIB Small Bus. Optimism
  • Jobless Claims
  • Producer Price Index
  • Consumer Price Index
  • Retail Sales
  • Business Inventories
  • Consumer Sentiment
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