In this week’s recap: stocks slump as the 10-year Treasury yield spikes, an ISM index hits a historic peak, job creation weakens, and oil extends its winning streak.
Weekly Economic Update
October 8, 2018
10-YEAR TREASURY YIELD HITS A 7-YEAR PEAK
Friday, the yield on the 10-year note reached 3.23%, its highest level since 2011. Its yield rose dramatically last week, influenced by hawkish comments from Federal Reserve chair Jerome Powell and reports showing minimal unemployment and a swiftly expanding business sector. All this strengthened investor perception that the U.S. economy has hit its stride. It also suggested a near future with recurring interest rate hikes, costlier borrowing, and subdued spending. That possibility weighed on equities. For the week, the Nasdaq Composite fell 3.21% to 7,788.45, and the S&P 500, 0.97% to 2,885.57; the Dow Industrials retreated just 0.04% to 26,447.05.1,2
LESS HIRING IN SEPTEMBER
A look at the Department of Labor’s latest jobs report reveals good news and bad news. The good news? Unemployment declined further to 3.7%, annualized wage growth improved to 3.4% in the third quarter, and monthly net hiring averaged 190,000 in Q3. The bad news? Payrolls expanded with just 134,000 net new jobs last month, as underemployment ticked up 0.1% to 7.5% and year-over-year wage growth slowed to 2.8%. Some economists feel that Hurricane Florence significantly impacted the September data.3
SERVICE SECTOR EXPANDS AT A HISTORIC PACE
The Institute for Supply Management said its non-manufacturing purchasing manager index rose 3.1 points in September to 61.6. It has never been that high in its decade-long history. ISM’s PMI for the factory sector took a slight dip in September, slipping from 61.3 to 59.8 but still showing fast expansion.4
OIL MAKES ANOTHER WEEKLY ADVANCE
Crude is on a 4-week winning streak. At Friday’s closing bell, the price stood at $74.34 a barrel on the NYMEX, reflecting a 1.5% rise in five days. Again, worries over upcoming U.S. sanctions against Iran helped to send prices higher. WTI crude settled at $76.41 Wednesday, which approached a 4-year peak for the commodity.5
While the U.S. bond market is closed Monday in observance of Columbus Day, U.S. stock exchanges are open for business; no major economic or earnings releases are scheduled. | Nothing major is slated for Tuesday, either. | Wednesday, investors consider the September Producer Price Index and earnings from Fastenal. | On Thursday, the September Consumer Price Index appears, along with the latest initial jobless claims report and earnings news from Delta Air Lines and Walgreens Boots Alliance. | The fall earnings season begins Friday, with announcements from Citigroup, JPMorgan Chase, PNC Financial Services Group, and Wells Fargo; in addition, the University of Michigan’s preliminary October consumer sentiment index arrives.
1 YR AGO
5 YRS AGO
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10 YR TIPS
Sources: wsj.com, bigcharts.com, treasury.gov - 10/5/182,6,7,8 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
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1 - thestreet.com/markets/stocks-rise-slightly-on-friday-after-september-jobs-report-14735092 [10/5/18]
2 - markets.wsj.com/us [10/5/18]
3 - bloomberg.com/news/articles/2018-10-05/u-s-payrolls-and-wages-cool-while-jobless-rate-hits-48-year-low [10/5/18]
4 - instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?navItemNumber=30177 [9/26/18]
5 - marketwatch.com/story/us-oil-benchmark-ends-nearly-flat-but-tallies-a-4th-straight-weekly-rise-2018-10-05 [10/5/18]
6-bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F6%2F08&x=0&y=0 [10/5/18]< br>6-bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F6%2F08&x=0&y=0 [10/5/18]< br>6-bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F6%2F08&x=0&y=0 [10/5/18]
7 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [10/5/18]
8 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/5/18]
Posted on Mon, October 8, 2018
by Sound Financial