Market Update: Friday, October 6, 2017

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Market Recap

  • General risk-on session, major indexes finished near session highs. S&P 500 Index (+0.6%) posted eighth straight gain. Dow +0.5%, Nasdaq +0.8%
  • Technology outperformed (+1.1%) on strength from FAANG, software stocks. Financials also outperformed as bank stocks benefitted from rising rates, though higher rates weighed on bond proxies utilities (-0.1%), telecom (-0.1%).
  • 10-year Treasury yield +2 basis points (0.02%) to 2.35%.
  • Commodities – WTI crude oil +1.6% to $50.75/bbl., dollar strength (DXY +0.5%) helped push COMEX gold lower (-0.3% to $1271/oz.).
  • Fed speakers leaned hawkish; but provided little new news.
  • Headline factory orders for August +1.2% vs 1.0% consensus, -3.3% in August. Core orders +1.1%, upwardly revised from +0.9% prelim. figure.
  • Int’l trade deficit for August $42.4B vs $42.9B consensus and $43.6B in July, which was an 11-month low. Exports +0.4% to highest since Dec 2014. Imports -0.1%, marking four straight months of declines.

Overnight & This Morning 

  • U.S. stocks opened lower after disappointing jobs figure.
  • Nonfarm payrolls -33k in September vs. +80k consensus. Marked first drop since 2010, recent hurricanes cited as notable impacts. Hourly earnings (+0.5%) beat consensus (+0.3%), unemployment (4.2%) ticked lower (details below).
  • Asian equities finished higher following Thursday’s strength in U.S. Mainland China, Korea markets still closed. Hang Seng (+0.3%) ended week at highest level in 10 years; Nikkei +0.3.
  • European indexes lower midday. Broad weakness extended after U.S. jobs data released. STOXX Europe 600 (-0.3%).
  • Treasuries moving higher; 10-year note +4 basis points (0.04%) to 2.39%.
  • Commodities – WTI crude (-2.6%) erasing yesterday’s gains, now below $50/bbl.; gold (-0.4%) to $1267/oz., industrial metals mostly lower with copper -0.4%.

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Key Insights

  • The CBOE’s Volatility Index (VIX) hit its lowest level ever at 9.19, leaving some investors concerned about the persistent low volatility, low trading volume, and high valuations. While we share some of those concerns given the absence of what would ordinarily be considered “healthy” pullbacks, we continue to view valuation on a relative basis (rather than an absolute basis), focusing on the market P/E in an environment of low inflation and interest rates.
  • October volatility coming? It might not sound like much, but yesterday the S&P 500 Index closed up more than 0.5%. This ended a streak of 17 consecutive days without a move of more than 0.5% (up or down) from the previous day’s close. As we have noted, last month was the least volatile September ever, and while low volatility has continued into October, this month has historically has been one of the most volatile of the year. Accordingly, a bout of turbulence as we head into year-end would not be unusual.

Macro Notes

 

  • Hurricane impact leads to first monthly job less since 2010. U.S. payrolls fell 33,000 in September, compared to consensus expectations for creation of 80,000 jobs. At the same time, the unemployment rate dropped from 4.4% to 4.2%, the lowest level since February of 2001 (derived from a different survey), while wage gains–also impacted by hurricanes–accelerated, rising 0.5% month over month and 2.9% year over year, compared to consensus expectations of 0.3% and 2.6% and 0.1% and 2.5%, respectively in the prior month. The hurricane impacts are clear with 1.47 million people reportedly unable to work due to bad weather (worst in more than 20 years), a sharp 100,000 decline in restaurants and bars employment, a jump in wages to fill the weather-driven labor shortage, and fewer lower-wage employees able to work. The Federal Reserve is likely to see this report as an anomaly as the labor market continues to firm, and remains on track to raise interest rates once more by year end.
  • What Is the 10-Year Treasury Yield Telling Us? The 10-year yield is right near a potentially impactful level, i.e., its 200-day simple moving average. Check out the LPL Research blog to learn more.
  • Another new high. The S&P 500 closed at another new high yesterday, marking its 51st new high of the year. It was the first 8-day win-streak since 2013 and the first 6-day new- all-time-high streak since June 1997. Today on the LPL Research blog we will take a closer look at some of the long streaks taking place currently.

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Click Here for our detailed Weekly Economic Calendar

Friday

  • Change in Nonfarm, Private, & Manufacturing Payrolls (Sept)
  • Unemployment Rate (Sept)
  • Average Hourly Earnings (Sept)
  • Average Weekly Hours (Sept)
  • Labor Force Participation & Underemployment Rates (Sept)
  • Wholesale Sales & Inventories (Aug)
  • Consumer Credit (Aug)
  • Bostic (Dove)
  • Dudley (Dove)
  • Kaplan (Hawk)
  • Bullard (Dove)
  • Germany: Factory Orders (Aug)
  • Italy: Retail Sales (Aug)
  • Japan: Leading Index (Aug)

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.

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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.

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