 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. U.S. Markets Rally to Close out a Volatile Week 2. U.S. Jobs Report Steady and Unemployment Falls to 3.5% 3. Best Returns 4. October is Packed Markets Closed
Year-to-Date
 (credits: Dean Mouhtaropoulos/Getty Images)
Markets Today
U.S. markets powered higher on Friday, essentially erasing losses from earlier in the week... and what a volatile week it was. The tranquility of September was quickly forgotten as the first few days of October have proven to be action-packed, in all kinds of ways.
September Jobs Report U.S. employers added 136,000 jobs last month, which was lower than expected, but not by much. The unemployment rate dropped to 3.5% from 3.7%, and is now at its lowest levels since December of 1969.
(Chart courtesy of YCHARTS.com - Note to readers: We just started working with the good folks at YCHARTS, and have become big fans of their platform)  A couple of notable items from the September jobs report:
The Philips Curve non-Effect Modern economies are defying many of the economic rules of the 20th century. That's not totally unexpected given that economics is a social science built on theories that can be disproven over time as new events happen.
One of those theories is that of the Phillips Curve.
The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
It is also being disproven in the U.S. economy over the past several years as economic growth and low unemployment have not led to inflation, which has been a frustration for the Federal Reserve, which has an inflation target of 2%.
Even though the U.S. economy is growing, albeit more slowly, companies are having a hard time increasing prices, which is showing up in their declining earnings. We'll start to see those results next week as earnings season begins.
U.S. Trade Gap Widens The Commerce Department said Friday that the gap between what the United States buys and what it sells abroad rose 1.6% to $54.9 billion from $54 billion in July. The deficit had fallen in June and July, but purchases of imported goods by U.S. consumers combined with the impact of a new round of tariffs against China and the U.S. widened the gap.
Imports rose to $262.8 billion, while exports increased to $207.9 billion. Imported consumer goods increased by 1.9 billion, thanks to the strength of the U.S. consumer, who had been spending aggressively until a few weeks ago. We'll see what this chart looks like in a month.
Here's the last 3 years of the trade balance, courtesy of YCHARTS  Scoreboards Now that we are a few days into the fourth quarter, let's take a look at the performance of major asset classes across the globe:
(All as of 9AM ET)
This is an extension of the patterns we have seen all year, for the most part. REITs (Real Estate Investment Trusts) which give investors the ability to invest in property through a publicly traded security, have gone gang-busters as global investors look for relatively stable assets to park their money. A long and drawn out recession would be bad news for REITs, but until those storm clouds get closer, real estate continues to shine. Gold does as well, but mostly because it is considered a safety play in tumultuous times.
Here's Gold and long term U.S. Treasuries year-to-date. You can call this chart, "The Year of Living Dangerously".  Source: YCHARTS
Global Equity Winners Every time I have looked at the countries with the best equity returns so far in 2019, I am surprised. We know that the economy and the equity markets are two different beasts. One can influence the other, and they often do, but sometimes equity markets sing to their own tune.
That's happening now in several countries around the world.  Keep in mind, Greece and Switzerland have negative interest rates, so stocks may be the only game in town for investors in those markets. We have no visibility into Russia's equity market, so take it for what it is.
What to Expect Next Week and Beyond Corporate earnings reports start trickling in next week when we will hear from companies like Delta Air Lines, Levi Strauss and Dominos Pizza, to name a few.
As we mentioned earlier this week, more than half of the companies in the S&P 500 have warned of lower earnings for the past quarter and the one coming up. The question is "How Low?, but we really won't get an answer to that until the week after next.
October 10th - Trade Negotiations Resume Circle that date on your calendar because that is when the Chinese trade delegation is expected to come to the U.S. to resume trade negotiations with their U.S. counterparts. No one really expects a trade deal to come out of these talks. In fact, most trade and economic policy experts don't expect a trade deal until well into 2020, when it might make a bigger political splash. Still, any progress or hints of progress will go a long way to easing some economic concerns for the U.S., China, and many of the other countries that trade with them.
Lest we forget, on October 15th, the U.S. is set to levy an additional 5% tariff on $250 billion worth of Chinese goods. We can expect China to respond if that comes to pass, so maybe the negotiations beginning next week can prevent or delay that from happening. We'll see.
The E.U. in October This is a massive month for the European Union. The U.K. is scheduled to leave the E.U. via Brexit on October 31st, and P.M. Johnson has personally guaranteed it will happen. It's hard to see that coming to pass given the discord inside British Parliament and the pure hatred some members have towards the Prime Minister. It's been ugly.
Yet, on October 17-18, there will be an E.U. Summit where Brexit will be top of mind. They will also discuss climate change, the budget and appoint Christine Lagarde as head of the ECB, but it will be hard to avoid the elephant in the room wearing a Union Jack.
On October 24th, the ECB (European Central Bank) will meet on interest rates and monetary policy. It will be Mario Draghi's last meeting as President. He will hand the gavel to Lagarde, but having cut interest rates to historic lows and made promises to buy government debt, he is handing her a gun nearly depleted of ammunition. No pressure, Christine.
photo courtesy Yahoo Finance  FOMC Meeting October 30 As mentioned yesterday, the U.S Federal Reserve will meet at the end of the month on interest rates. Most people expect another 0.25% cut to the federal funds rate. Today's jobs report and the recent weakness in both manufacturing and consumer data should make that a lock.
Have a great weekend!
P.S. 'Machinatus' means 'Working' in Latin
chart courtesy YCharts  Semiconductor manufacturer Skyworks Solutions rose 4.4% as it rebounded after a sell off in light of the ongoing US-China trade war. Packaged food maker Conagra Brands rose 3.7%, Insurance company Chubb Ltd rose 3.6%, and laboratory equipment manufacturer Thermo Fisher Scientific rose 3.3%.  The market reacted skeptically to HP Inc's restructuring plan, with its stock dropping 9.6% Friday, while oil exploration and production company Apache Corp dropped 5.8%. Agricultural chemical and seed manufacturer Corteva dropped 3.7%. Word of the Day Price War  (credits: Wikipedia)
Today in Market History October 4, 2008 On October 4th, 1957, the USSR successfully launched the first artificial satellite, named Sputnik, roughly translated as "travelling companion." The U.S. successfully launched its first satellite on January 31, 1958, named Explorer I, roughly translated as "Explorer I." There are now over 2,000 satellites in orbit around the Earth today, aiding in everything from communication to navigation.
(https://history.nasa.gov/sputnik/)
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Friday, October 4, 2019
Machinatus
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