Jobs Preview

This Friday the monthly employment report for August will be released. With many looking at the potential for a September rate hike, this report will be heavily watched for clues as to when the Federal Reserve (Fed) might next raise rates. According to our Chief Economist John Canally, “Job growth naturally starts to slow down at this point in the economic cycle. We would need a solid number to keep a September rate hike in play, but Fed officials have commented that a slowdown to even 120,000 jobs created per month over the medium term would likely be enough to tighten labor markets.”

Here are some stats to chew on before the big day on Friday.

  • Expectations are for 180,000 jobs created in August, which would be beneath the 255,000 created in July and 292,000 in June, but would be well above the huge miss in May (24,000 jobs created).
  • August has created jobs for five straight years and hasn’t hit six in a row for 20 years.
  • No month has created fewer jobs per month the past 25 years than August at less than 86,000 a month.

083116_Blog_Figure1

  • Jobs have been created for a record 70 straight months. It reached 46 right before the Great Recession and the previous record was 48, which ended in July 1990.

083116_Blog_Figure2

  • The 12-month average of jobs growth has been above 200,000 for 27 straight months for only the seventh time since 1939. The last time it got this far was a 53-month streak that ended in October 2000.
  • The unemployment rate has been beneath 5% for three straight months for the first time since a streak of 24 straight months that ended in late 2007.

In conclusion, all economic reports are important, but some are more important than others and the employment report is always one of the month’s highlights. Last week at the Fed’s conference in Jackson Hole, Wyoming, Fed Chair Janet Yellen left the door wide open for a potential September rate hike. If the jobs number this Friday comes in weak, a September hike is probably off the table. Of course, if the number is strong, then the chance for the second rate hike in nearly 10 years heats up.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

Tracking #1- 531238 (Exp. 08/17)

Market Update: Wednesday, August 31, 2016

MarketUpdate_header

  • Markets show little reaction to ADP report. U.S. equities are near flat in early trading, following the release of the ADP employment report, the precursor to Friday’s highly anticipated nonfarm payrolls data, which showed the private sector added 177,000 jobs in August, near the consensus expectation of 175,000. Despite the S&P 500 moving lower on Tuesday, financials were a strong outperformer, gaining 0.8% and the only sector to close higher. Overnight, Asian markets closed mixed, though both the Nikkei and Shanghai Composite advanced, moving up 1% and 0.4%, respectively. Meanwhile, European markets are looking for direction as they digest a host of economic data. WTI crude oil has slipped back below $46/barrel, COMEX gold is lower near $1312/oz., and the yield on the 10-year Note is down slightly to 1.56%.

MacroView_header

  • The beat goes on for the labor market. The ADP employment report indicated the private sector created 177,000 net new jobs in August, beating expectations (+175,000). However, the August reading represented a slight deceleration from July’s +194,000 reading, which was revised higher from the originally reported +179,000.  Year to date through August, the ADP employment data show average job growth at 185,000 per month, a slowdown from 2014’s 234,000 per month average and 2015’s 207,000, but still enough to keep the Fed on track to tighten later this year. Federal Reserve Bank (Fed) officials have said job gains in the range of 125-150,000 per month are sufficient to tighten the labor market and push up wages, suggesting this report gets them a bit closer to a rate hike this fall. The U.S. Bureau of Labor Statistics will release its August 2016 Employment Situation Report on Friday, September 2. The consensus is expecting a 180,000 increase in jobs, a 4.8% unemployment rate, and a 2.5% year-over-year increase in average hourly earnings.
  • European inflation below targets. European inflation came in below expectations and well below the European Central Bank’s (ECB) target rate of 2%. Annual inflation was only 0.2%; excluding volatile sectors like food and energy, the annual inflation rate was 0.8%. Removing all commodity influences, services-only annual inflation was only up 1.1%. The inability to get inflation to the 2% target remains a puzzle for the ECB. On one hand, it encourages them to do more quantitative easing and lower interest rates even further. However, there is increasing belief among economist and policy makers that not only is monetary policy at the limit of effectiveness, but it might actually be contributing to the very problems the policy is designed to fix.
  • 6 in a row? The S&P 500 is up 0.12% in August with today being the last day of the month. Should it finish green for the month, this would be six consecutive higher months for the first time since April 2013. It is worth noting though that recently the last day of the month has been historically weak. It has been higher the past two months, but was up only three of 19 times before that.
  • Jobs preview. With the August jobs report coming out Friday morning, today on the LPL Research blog we will do a jobs preview. Expectations are for 180,000 jobs to be created, which would be below July and June, but above the disappointing 24,000 created in May. Incredibly, jobs have been created a record 70 consecutive months, well above the previous record of 48 which ended in July 1990. Be sure to read the blog later today for more insights on this important piece of economic data.
  • How boring is boring? With a day to go, so far August has been boring – but just how boring? Well, using closing prices only, the S&P 500 in August has traded in a 1.54% range – the smallest monthly range since August 1995. In fact, going back to 1928 only six months have had a smaller monthly range.

MonitoringWeek_header 

Wednesday

  • ADP Employment (Aug)
  • Rosengren (Dove)
  • Eurozone: CPI (Aug)
  • China: Official Mfg. PMI (Aug)
  • China: Caixin Mfg. PMI (Aug)

Thursday

Friday

  • Employment Report (Aug)
  • Lacker (Hawk)

Click Here for our detailed Weekly Economic Calendar

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-531227

The Smallest Range in Five Decades Part 2

On the blog yesterday we broke down how historically tight a range the S&P 500 has been in recently, along with some other interesting stats. As we mentioned at the time, Bloomberg had a very interesting article that noted the S&P 500 was in its tightest 30-day range going back 50 years. Today we will take a closer look at this phenomenon.

Going back the past 30 days, using closing prices only, the S&P 500 has traded in just a 1.54% range. This is the smallest 30-day range since December 1965, which sported a 1.23% range. In other words, the range on the S&P 500 the past 30 days is the smallest in more than 50 years! Things have seemed boring, but that really puts some more color on that lack of action.

083016_Blog_Figure1

Take one more look at the chart above. The past two times we saw tight ranges close to (but not lower than) the past 30 days were late 1993 and early 2007, both of which lead to eventual significant volatility about a year later. Here is where things get tricky, as the late 1990s had volatility to the upside for several years before peaking in 2000, while we all remember the volatility that 2008 brought with it. This tight range by itself tells us nothing about the market direction accompanying the eventual rise in volatility, only that it is coming.

In conclusion, we will end with how we ended the blog yesterday:

What does this all mean? The bottom line is the lack of volatility we’ve seen lately is truly historic. It is important to note though that it won’t stay this way forever. Non-volatile times eventually transition to volatile times—this has happened throughout market history and we expect it will continue to happen. Then don’t forget that September and October, two of the most volatile months, are on tap. Although we do expect volatitly to heat up later this year, it is important to note this isn’t a reason to panic—as this volatility is actually perfectly normal.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

Tracking #1- 530813 (Exp. 08/17)