Reports show that there’s strength in the labor market right now. In September there were 136,000 jobs added into the workforce. The healthcare industry held the most additions. It’s also worth noting that in the previous two months the jobs number was revised and ended up being higher by 45,000 jobs. The jobs number that we already thought looked good, looks even better now. The unemployment rate is down at 3.5% and is the lowest that it’s been since Joe Namath and the New York Jets were reigning Super Bowl champions, 50 years ago. Average hourly earnings is up 2.9% year-over-year, as well. The combination of those things is important to the markets because it shows that the consumer now has purchasing power. They’re going to be putting money back into the economy and will be a great thing moving forward.
On Thursday Randal Quarles, the Fed Vice Chair under Jerome Powell, will participate in a vote on new banking policy. The policy being voted on says all banks in the U.S. that are under the $700 billion asset line could see a significant relax in capital requirements. Middle market regional banks do a lot of lending to companies and it will really matter when it comes to the turnaround to order stuff from other people. There could be a huge hidden liquidity push into the economy that can help us at the end of the year. You may not hear about this topic on Thursday but it’s probably equally as important as what’s going on with the Fed on Wednesday and could cause a huge ripple effect.
History Repeats Itself
Last week we talked about October being historically the most volatile month of the year. That was proven true last week as the S&P traded back 2%. That was the worst start for October since 2008. The news came out that manufacturing activity fell to the lowest level in a decade and the services sector had the slowest growth in 3 years. All of that negative news caused the market to trade back. This week will be very important to keep an eye on after last week. Things to watch will be the high-level trade talks with China that are happening later this week and the Fed minutes that will be released on Wednesday.
The market has obviously been focusing on the data. The manufacturing and service economy data slowing down is perceived to be occurring because of the China trade risk and trade fear. This week the Chinese Vice Premier, Liu He, is expected to resume discussions with very high-level U.S. trade negotiators. If those go well, we perceive that those manufacturing drops will be temporary. This time last year the S&P 500 was trading at around 2,901 and right now, it’s at 2,952. We’ve come a long way since the fourth quarter of last year. The market dropped around 20% and then we rallied back with only a few fits and starts throughout the year. We’re back to about where we were last year and what really caused that drop was fear of trade and a very hawkish Federal Reserve. The 10-year Treasury yield went from 3.2% to 1.51%, which is an incredible drop in a year. The Fed has done their part and now it’s time for the U.S. trade negotiators to do their part to get this market, which has worked hard, back to where it was this time last year.
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