The Hurricane Effect | October 8, 2017

Markets advanced last week as volatility was muted while geo-political concerns and a negative jobs creation report did not stand a chance… Here is why.

The Bad

Geo-political tensions seemed to enhance this past week (not just relations between the US and North Korea, but also relations in the E.U.) as Catalonia is attempting to become independent of Spain. Catalonia produces about 20% of GDP for Spain and does not receive its full representation in tax flows back to its territory.

The jobs report was a mixed bag of data. The negative take away was that rather than adding jobs in September, the economy saw jobs fall by 33K for the first time in nearly 7 years.

The Good

Unemployment actually had three positive aspects. First, the under-employment figure fell from 8.6% to 8.3%. Second, the overall rate fell to 4.2% from 4.4%. Third, wage growth increased to 2.9% year over year.

Factory orders expanded in August–A good signal of consumption demands moving into the 4th quarter.

Manufacturing also expanded at the highest rate since 2010 (60.8)–A great signal of economic acceleration.  This should lend itself to strong corporate earnings in the first part of 2018.

Conclusion

There was much for the markets to be happy about last week with regards to hard economic data moving into Q3 earnings season. Hurricanes, however, have skewed many of the numbers just discussed. The subtraction of jobs, the falling unemployment rate, wage increases, and manufacturing increases all remain subject to skepticism at this point.

 

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