X Weekly Market Commentary – October 7, 2019
Posted on October 7, 2019

Weekly Market Commentary – October 7, 2019

Market Commentary

The monthly U.S. employment report created some very positive headlines but also indicated slowing business investment is spilling over to the jobs market. The unemployment rate fell to 3.5%, the lowest level in 50 years. As shown on the accompanying chart, payrolls increased by 136,000 jobs last month, roughly in line with expectations. But monthly wage growth was flat, and the number of new jobs is trending downward.

Key Points for the Week

  • U.S.-China trade negotiations could move markets substantially this week.
  • The U.S. economy created 136,000 jobs, reflecting a healthy job market that faces some signs of slowing.
  • The S&P 500 rose 1.7% in the third quarter.

Global stocks dipped last week. The S&P 500 edged 0.3% lower. The MSCI ACWI index of global stocks slipped 0.9%. The Bloomberg BarCap Aggregate Bond Index rallied 0.8% on concerns economic slowness will continue. For the quarter, the S&P 500 rose 1.7% on the strength of a 1.9% increase in September. Meanwhile, global stocks were flat in the third quarter, and bonds produced the best return of the three asset classes, rising 2.3%.

The trade meeting between the U.S and China will likely be the key event this week. If the meeting produces substantial progress toward a deal, the removal of some tariffs, and a de-escalation of tensions, it would likely be a meaningful step forward.

nonfarm payroll 

You Get What You Get

“You get what you get, and don’t throw a fit” is a popular adage for those doing the best they can with limited resources to satisfy many. The same phrase could help investors keep a healthy perspective as they process U.S.-China trade negotiations this week, jobs data last week, and performance in the third quarter.

The U.S. and China resume high-level trade negotiations in Washington this week. The trade war between the two countries has slowed economic growth across the globe, and meaningful progress would be welcome. A “gold medal” deal, where the major issues are resolved, seems unlikely given the ratcheting up of tariffs last quarter. A more realistic hope would be a “bronze medal” deal where tariffs are reduced and companies are provided stability to make long-term decisions.

The slowing growth of business investment contributed to a jobs report that was good on the surface but closer to “OK” after a deeper analysis. People hurt badly by the 2008-2009 financial crisis are doing better. The unemployment rate for workers without high school degrees continued to drop, speaking to the broad population benefiting from a long stretch of economic growth. Other aspects of the report weren’t as positive. As the light blue line on the chart shows, the trend in job growth is clearly slowing. It wasn’t a stupendous report, but it was good enough.

Given the difficult quarter for trade negotiations and slowing global economic growth, investors should also accept the solid 1.7% return from the S&P 500 in the third quarter. If the stock market rose at this pace every quarter, it would return around 7% each year. Historically, U.S. stocks have risen closer to 10%, but inflation has also been higher. When adjusting for inflation, returns are a little lower than the historical average, but not much.

Taking what you can get is part of investing. Participating in the market and accepting the risk is inherent to the process because the investor has little control over the results of their investments. Investors don’t run the companies, negotiate the trade agreements, or set the tax rates. But investors can control their reactions. Avoiding fits of fear and exuberance can help them reap the rewards for the risk they bear.

Fun Story

Ohio State University wants “The” Ukraine Doesn’t

Ohio State lost its initial bid to trademark “The” as part of its efforts to brand itself as “The Ohio State University.” A fashion line had also sought to trademark “the” earlier this year but was rejected. It does seem strange someone could trademark the most-used word in English.

Ukraine is on the other side of the issue. It wants people to stop referring to it as “the Ukraine.” It makes it sound like a region, rather than an independent country. Its name, in Russian, means “borderlands,” and Ukraine wants the world to know it is an independent country and not the borderlands of a larger country. Ukraine is most hopeful that Russia will get this message as the Russians seem to periodically forget.