Market Update: Friday, September 7, 2018

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Daily Insights

  • Still waiting on trade news. Stocks around the world are quiet this morning as investors wait for trade developments. The public comment period for another $200 billion in tariffs on Chinese goods ended yesterday, and President Trump has stated his intentions to enact the tariffs within 24 hours of the comment period closing. Beijing has stated it will retaliate with its own tariffs on U.S. goods. While we believe the U.S. and China will also eventually reach an agreement, it is looking less likely that we will see that happen before mid-term elections.

  • Jobs growth above consensus estimates, wage growth surprisingly strong. Nonfarm payrolls rose 201K in August, higher than July’s 157K increase and consensus expectations for 190K growth. The unemployment rate (3.9%) remained near its lowest level since 2000. Overall, job growth is slowing, which is expected this late in the cycle, but the labor market remains solid. To us, the most important number to watch these days is wage growth. Average hourly earnings rose 2.9% year over year, its fastest pace of growth in this economic cycle and higher than consensus estimates for 2.7% growth. While wage growth is still nowhere near the 4% clip we’ve seen before previous recessions, wage pressures have accelerated considerably over the past few months. We still believe inflation is contained, and the U.S. economy has ample time before inflationary pressures can weigh on output. However, we will continue to monitor gauges of inflation, as quickly increasing pricing pressures could force the Fed to consider more aggressive tightening.

  • Service industry remains strong. The Institute for Supply Management’s (ISM’s) Non-Manufacturing (Services) Index climbed to 58.5 in August, one of its highest readings of the economic cycle and above consensus estimates of 56.8. While the index rebounded from an 11-month low, the ISM Services Index’s average reading of 58.4 this year is its strongest annual reading since 2004. Data earlier this week showed ISM’s Purchasing Managers Index, a gauge of manufacturing health, rose to a 14-year high last month. With the services and manufacturing sectors firing on all cylinders, the U.S. economy could be poised for another strong quarter of economic growth.

  • Our take on U.S. stocks’ monthly winning streak. So much for Sell in May and going away. The S&P 500 Index has now posted five consecutive monthly gains. This rare feat is actually quite bullish: the S&P 500 has been up a year later in 24 of the 25 times this has happened. The most recent occurrence was actually a year ago, and the S&P 500 gained 17.4% over the ensuing 12 months. We take a deeper dive into this potentially bullish development on the LPL Research blog.

  • Beware September? As we noted recently, September has historically been a troublesome month for U.S. stocks. In fact, it has the lowest average return out of all 12 months going back to 1950. So far, September 2018 is off to a tough start, with the S&P 500 down all three days so far this month for the first time since 2014. Only twice in history has the S&P 500 fallen the first 4 days of September, in 1987 and 2001. However, losses these past three days have been quite contained, and as we discuss in today’s blog post, the S&P 500 monthly win streak could bode well for future equity strength.

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Friday

  • Nonfarm Payrolls Report (Aug)
  • Unemployment Rate (Aug)
  • Eurozone GDP Report (Q2)
  • China Trade Report (Aug)


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