Market Update: Wednesday, October 31, 2018

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Daily Insights

  • LPL Market Signals Podcast. On the latest episode of the LPL Market Signals Podcast, listen to LPL Financial Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick review the S&P 500 Index’s worst month so far this year, European economic concerns, U.S./China trade issues, and Federal Reserve (Fed) policy. Market Signals by LPL Financial is now available on iTunes, Google Play and Spotify. Please join our discussion on social via #LPLMarketSignals.

  • LPL Research on CNBC. Senior Market Strategist Ryan Detrick was on CNBC Power Lunch yesterday talking midterms, October volatility and earnings. You can watch the full interview here.

  • ADP report hints to strong payrolls gain. U.S. jobs grew 227,000 last month, the strongest increase since February and higher than consensus estimates for a 187,000 gain. The ADP data is a positive signal for the strength of the labor market in October, which we’ll get more details on in Friday’s jobs report. For Friday’s report, we expect a continuation of the trends we’ve seen recently: solid payrolls growth, a historically low unemployment rate, and manageable wage growth.

  • Labor costs increase. The Employment Cost Index (ECI) grew 0.8% in the third quarter, higher than consensus estimates of a 0.7% gain. Year-over-year, the ECI rose 2.8% through last quarter, its largest increase of the cycle. Investors watch ECI and other reports for clues on inflationary pressures, as wages represent up to 70% of business costs. While the recent increase in labor costs is high for the cycle, historical context is important. ECI averaged 3.3% year-over-year growth in the last tightening cycle (from 2004 to 2006), and rose as high as 3.8% in that period. We believe the current pace of wage growth is a net benefit to the U.S. economy, but not strong enough to force more aggressive monetary policy.

  • China manufacturing hits two-year low. China’s official manufacturing Purchasing Managers’ Index, released overnight (50.2), is hovering just above the 50.0 threshold dividing economic expansion and contraction. New export orders fell for a fifth straight month as the effect of companies’ front-loading shipments ahead of tariffs implemented earlier this year waned and higher supply chain costs continued to weigh on demand. Services data (53.1) remained further in expansionary territory, but continued to deteriorate. The continued slowdown comes despite government efforts to shore up growth, buoy sentiment, and boost liquidity. As President Trump threatens to levy taxes on the remaining ~$275 billion in goods imported by the U.S., Chinese officials may start to soften their tone ahead of a potential meeting between President Trump and Chinese President Xi Jinping at the G20 Summit late next month.

  • What worries us? Happy Halloween everyone! Today on the LPL Research blog we take a closer look at what scares us in today’s markets. From Fed mistakes, to weak market technicals, to U.S.-China relations – the list of worries is growing.

  • Good riddance, October. U.S. stocks have had one of their worst months in years. As of yesterday, it was the worst month for the S&P 500 since May 2010, worst month for the Nasdaq since October 2008 and worst month for the Dow since August 2015. How persistent has the weakness been? The S&P 500 hasn’t had back-to-back up days for the entire month. Unless it gains today, this will be the first time in history that has ever happened during the month of October.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

Thursday

  • Nonfarm Productivity (Preliminary, QoQ, Q3)
  • Markit US Manufacturing PMI (Oct)
  • ISM Manufacturing (Oct)

Friday

  • Nonfarm Payrolls (Oct)
  • Durable Goods Orders (Sep)
  • Markit Germany Manufacturing PMI (Oct)
  • Markit Eurozone Manufacturing PMI (Oct)


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