Yesterday, the Dow Jones Industrial Average was down 140 points. At any moment during the session, anyone watching or reading financial media would have thought the market was on the precipice of collapse.

Ironically, the most intriguing aspect of yesterday’s session was the strong close that saw a rush to buy stocks ahead of today’s economic data, including the employment report and the latest on national manufacturing. I’m not sure what prompted equity accumulation ahead of the closing bell, but several narratives evolved during the session.

One American outlet reported China is getting cold feet about doing any trade deals, including the so-called Phase One, reflecting frustration over our mercurial President. However, another report from the Chinese media is saying the process is moving along and both sides are ready to sign.

As for the data yesterday, it was mostly great news from the most important companies reporting earnings and the economic data. The data reflected consumer earnings is still growing at a healthy pace ($1.9 billion was lost to the United Auto Workers (UAW) strike), and spending moderated by folks are scared by the Great Recession.

The Fed’s favorite inflation gauge dipped again, which gets back to the lack of inflation mentioned by Jay Powell but ignored by most. American consumers have businesses over a barrel, and they are demanding even more.

Consider the following key trends announced in the past week:

• Brokerage firms going to 0% commissions
• Amazon (AMZN) is going to same-day grocery deliveries and making them free for prime members

For all the bluster of retailers and threats of future higher tariff-related prices, the fact is price increases are a luxury and must be handled with stealth, and even then, they are almost impossible.

I think it’s going to be a moot point with respect to the potential December 15 tariffs on more consumer goods. 

Fed and the Problem of This Era

Back in early September, the market was shaken, and the world of the Federal Reserve was turned upside down by a speech from New York Federal Reserve President John Williams who proclaimed: “Low inflation is indeed the problem of this era.”

He went on to add: “The current outlook of moderate growth, low unemployment, but stubbornly low inflation is a reflection of the broader economic picture and I am carefully monitoring this nuanced picture and remain vigilant to act as appropriate to support continuing growth, a strong labor market and a sustained return to two percent inflation.”

Williams was forced to say his comments were more academic and not a call on current circumstances of policy. The bottom line is fighting disinflation and preventing a deflationary death spiral is easier now than waiting before it’s too late.

Yesterday, we learned the Personal Consumption Expenditures (PCE) Price Index has begun to decline again.

Portfolio Approach

 

Today’s Session

I think the country is near full employment, so lower monthly jobs numbers are to be expected, which puts a lot of pressure on higher wages. On that note, wages growth for all workers has been trending above the rate of inflation, and non-supervisory wages have been on fire like no time in a dozen years.

Manufacturing Slows

On manufacturing, the Chicago manufacturing area includes almost 50 GM plants and distribution centers that shut down during the UAW strike (union brothers and sisters showed UAW love by slowing the economy in their own ways). 

We’ll get the read on national manufacturing later this morning.

Note: my thesis on Fed manufacturing surveys is pointing to a deal within six months -perhaps it’s not the grand bargain, but it’s a substantial reversal on tariffs and other gestures – which will get stronger with weaker numbers now. 

Buckle up – it’s going to be an eventful session.

Jobs, Jobs, Jobs

The October non-farm payroll was a winner, and there is absolutely no doubt that the consumer is in charge.  October added 128,000 jobs, of which 131,000 were added in the Private Sector.  September was revised higher by 44k from 136,000 to 180,000, and August was revised up 61,000 to 219,000 from 168,000.  Wow.  The GM strike took out 42,000 jobs, which caused manufacturing jobs to be down by 36,000. 

• Average hourly earnings +0.2%
• Real unemployment U6 from 6.9 to 7%
• Unemployment rate ticked up from 3.5 to 3.6
• Labor Participation was 63.2 from 63.3
• The prior month's reading was the lowest rate since December 1969
• 3 month rolling average, 176,000 jobs added

The markets loved the report, and the major indices are all higher. 

 

Comments

Charles, "mercurial" is a strange word to describe our President. William S. Brown on 11/1/2019 11:05:06 AM

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