Investors breathed a sigh of relief this morning with the release of today’s payroll data. Jobs in the US increased by an estimated 128,000 in October. ADP released data Wednesday calling for hiring activity to total approximately 125,000. On the surface the headline jobs figure is somewhat disappointing, but given a dip in government hiring activity owing to the 2020 Census and the United Auto Workers strike, the result is relatively benign. In fact, the manufacturing sector actually added ~36,000 last month. Meanwhile, the unemployment and U-6 rates both ticked up 0.1% to 3.6% and 7.0% respectively. Labor force participation clocked in at 63.3% with hourly earnings increasing 3.0% year over year. All in all, not great but crisis averted.
Leading up to today’s report, there were many concerns- not the least of which economic. Data continues to suggest a slower pace of growth. Some of the “softness” in the recent data can be attributed to the level of uncertainty in today’s investing environment. Earnings have been mixed this season. US-China trade discussions are ongoing. Brexit has been postponed (again). There is a new boss at the ECB. The Fed is working its magic in the repo market- it’s not QE unless they say it’s QE. Mr. Powell is also hoping to hold the line on further rate cuts. US GDP is running a shade below 2.0%, but the US consumer is in good shape. For our part, we continue to see earnings growth as likely over the next 12 months and feel reasonably confident that the market will continue to reward corporate America as earnings growth becomes realized. That said, present valuations appear rather full on a forward looking basis. Recession must remain at bay both here and abroad for earnings growth to continue in 2020.
Much hangs in the balance between now and the end of 2019. The much heralded Trump-Xi meeting is approximately two weeks out. Negotiators on both sides seem to have agreed on the framework for the first phase of a deal. Meanwhile, US retailers have issued mixed guidance regarding expectations for the upcoming holiday season. Across the pond a snap election is on the December docket in the UK. What's at stake? The path forward for Brexit. US politics continue to take centerstage domestically, generating daily headlines. All the while, the data suggest US consumers and businesses are muddling through the slough of uncertainty for the time being.
Market Outlook: Bullish USD, Neutral Duration, Neutral Equities