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Weekly Vantage Point | 10.5.15

 
Fed Policy Confusion Sent Stocks Lower

October 5, 2015 — U.S. equities bounced back twice last week after the S&P 500 had approached its August 25th low of 1,867. The benchmark index had fallen as much as 2.6% last Monday after Glencore Plc, one of the world's largest commodities export firm, plunged 28% on a selloff in commodities. Meanwhile, on Friday, stocks recovered from a morning retreat surrounding a very disappointing jobs report. Labor Department officials said the economy added just 142,000 new jobs last month, well below economists' consensus forecast for 203,000. Downward revisions in August and July subtracted 59,000 jobs. And while the unemployment rate held steady at 5.1%, it did so because the labor force contracted by 350,000. The jobs data renewed concerns over slowing global growth, yet investors realized the disappointment will likely cause the Federal Reserve to once again delay raising interest rates.

In other key economic data last week, factory orders fell by 1.7% in August to $473.0B, missing projections for a 0.2% gain. On a brighter note, Congress passed temporary budget legislation to fund the federal government through December 11th, thereby avoiding a shutdown of non-essential operations. Meanwhile, Treasury Secretary Jack Lew told Congress that the government will exhaust its borrowing authority a month sooner than expected, and would likely occur on or near November 5th. He asked Congress to raise the debt ceiling beyond the current level of $18.1 trillion.

For the week, the S&P 500 advanced 1.10%; the Dow Industrials added 0.97%; and the NASDAQ Composite trailed with a 0.49% gain. Nine of the ten major sector groups posted gains last week, led by Energy (+4.01), Materials (+2.41%) and Healthcare (+2.09%). Telecom (+0.11%) rose the least, while Financials were unchanged. Treasures prices advanced on safer-haven buying, pushing the yield on 10-year Treasury notes down 16.9 basis points to end at 1.994%.

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Words of Wisdom
 

"Perhaps the straight and narrow path would be wider if more people used it."

— Kay Ingram

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
DOW 0.97% 1.15% -7.09% -7.58% -1.96%
S&P 500 1.10% 1.65% -5.54% -3.72% 2.36%
NASDAQ 0.49% 1.91% -5.75% 0.27% 7.50%
Russell 3000 0.81% 1.64% -6.25% -3.90% 2.41%
MSCI EAFE 0.66% 1.49% -9.60% -3.86% -4.90%
MSCI Emerging Markets 1.92% 1.52% -16.63% -14.19% -17.01%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.68% 0.33% 1.78% 1.46% 2.89%
Barclays Municipal 0.49% 0.22% 2.00% 1.99% 3.14%
Barclays US Corp High Yield -1.78% -0.55% -5.62% -2.99% -4.16%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -0.68% 0.08% -13.71% -15.73% -25.65%
S&P GSCI Crude Oil -0.35% 1.00% -20.01% -14.51% -49.99%
S&P GSCI Gold 0.79% 1.92% -2.31% -4.01% -6.46%
Source: MorningStar
Disappointing September Payrolls Report
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Odds for 2015 Fed Rate Hike Goes Down...a Lot

Payroll employment increased by just 142,000 last month (203,000 was forecast), and August's total of 173,000 was revised lower to 136,000. As the above chart illustrates private-sector payrolls (i.e. non-government jobs) increased by just 118,000 in September and were revised to 100,000 for August. The last time private-sector job gains were this low was back in mid-2012. And while back then, the Federal Reserve had responded by launching a third round of quantitative easing (QE3), no such "QE4" response is even being contemplated today. However, this does mean that the Fed would be very hard pressed to raise interest rates with these low jobs numbers. Aside from this report and negative strong US dollar effects that are slowing manufacturing, most other U.S. economic measures are quite positive, especially improvements in consumer spending.

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Week's Economic Calendar
 

Monday, October 5: PMI Services Index, ISM Non-Manufacturing Index;

Tuesday, October 6: International Trade Deficit;

Wednesday, October 7: Weekly Mortgage Applications;

Thursday, October 8: Weekly Jobless Claims, September FOMC Minutes;

Friday, October 9: Import & Export Prices, Wholesale Trade Data.

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Weekly Trivia
 

Today: How many individuals have filed with the Federal Election Commission to run for U.S. president in 2016, through August?

Last Week: What animal can go without water for longer than a camel?

Answer: Giraffe

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