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Jobs to the Rescue? Investors Digest Data As Market Loss Streak At Eight

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November 4, 2016

(Friday Market Open) Can today’s jobs data help the S&P 500 Index (SPX) break its worst losing streak in eight years? With the SPX down almost 2% so far this week, a bit of a bounce seems possible.

October job growth of 161,000 came in a bit lower than the 175,000 that Wall Street analysts had expected, according to media surveys, but the projection range had been wide. The unemployment rate fell to 4.9%, from 5% a month earlier. Average hourly earnings rose 2.8% year over year.

Today’s employment numbers represent the last major economic data before next Tuesday’s election, which has been unnerving the market all week. The SPX has fallen eight days in a row, the longest loss streak since the Great Recession of 2008.

Key takeaways from the jobs report: Wage growth rose 0.4% month over month, the biggest jump since July. And on an annual basis, wages grew at the highest rate since June 2009. These numbers indicate that for the first time in a while, there may be some wage competition. The growth in wages exceeds the Fed’s 2% inflation target.

Also on the positive side of the ledger, the government raised its estimates for August and September jobs growth by a combined 44,000. Jobs growth in October was concentrated in government, health care and business-to-business services. That’s the first time in a while that government hiring has been among the top categories. Meanwhile, retail hiring fell, which is a bit of a mystery going into the holidays.

Volatility soared Thursday, as measured by the CBOE’s VIX, rising above $22. That was the highest level since June’s Brexit vote, and, like then, it’s likely climbing to these peaks on the back of political uncertainty. Anxiety about the election appears to have brought back the so-called “safety trade,” as investors pile into places where their money may have more protection. Gold is back above $1,300 and bond yields are down from their recent highs.

Meanwhile, over at earnings central, shares of GoPro (GPRO) fell 19% in pre-market trading after the company reported Q3 results that missed expectations and issued downbeat guidance for Q4 and the full year. But Starbucks (SBUX) shares rose after the company reported Q3 results that beat analysts’ estimates. Same-store sales grew 4%, a little below analysts’ expectations, ending a 25-quarter stretch of 5% or better same-store sales growth.

S&P 500

FIGURE 1: PIECES OF EIGHT.

The S&P 500 (SPX), plotted through Thursday on the TD Ameritrade thinkorswim® platform, has now fallen eight days in a row, and came within a few points of support at the 2080 level.  Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Yield Curve Steepens After Fed Meeting: The spread between 2-year and 10-year U.S. Treasury bonds climbed back above 100 basis points Thursday after the Fed said the case for a rate increase had strengthened. The yield on the 2-year note was at 0.79% while the 10-year yield climbed to 1.81%. The spread had fallen below 80 basis points over the summer, and clawed back to 100 basis points late last week for the first time since May. Higher yields often help the financial sector, which was among the best performers Thursday and has easily outpaced the broader market over the last three months.

Across the Pond: The U.S. Fed wasn’t the only central bank meeting this week. The Bank of England announced it’s keeping rates unchanged at historic lows. It also raised growth and inflation forecasts for 2017. The British pound rose against the dollar after the country’s high court stipulated that Parliament must hold a vote on the British exit from the European Union, or Brexit.

Oil Sector Under Pressure: The last part of the year can be a low-demand time for oil, and supplies have been mounting. Does that mean rough sledding ahead for the S&P 500 energy sector? The oil sector of the S&P 500 actually rose a little on Thursday, and remains up more than 11% year to date. But less than a month ago, the sector was up 18% for the year. Over the last month, energy stocks are down about 3.9%, a little worse than the market as a whole. And U.S. oil stockpiles remain well over the five-year average for this time of year, representing a supply overhang going into winter.

Good Trading,
JJ
@TDAJJKinahan

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