I’m Still Standing!

I’m still standing!  Stocks sold off on Friday after the Dow briefly topped 29,000 for the first time. A miss in unemployment data gave the bulls, and me, a needed day of rest.

 

N O T E W O R T H Y  

 

• Work, work, work.  Americans are hard at work with the US economy continuing to add jobs at a respectable clip.  On Friday, the Bureau of Labor Statistics announced that the US added +145k non-farm jobs.  The number missed expectations and was lower than the +166k added in November, which was largely the cause for Friday’s selloff in equities.  Still the +145k new jobs added in December brings the annual jobs added to 2.1 million, making 2019 the ninth consecutive year in which the US economy added more than 2 million jobs.  Though that is a respectable statistic, it fell short of the 2.7 million new hires in 2018 and is the lowest since 2011. Additionally, the BLS announced that unemployment for December was unchanged at 3.5%, a 50 year low.  Healthcare and retail trade showed the largest gains while mining, unsurprisingly performed the worst, losing jobs.  Another notable statistic in Friday’s release was Average Hourly Earnings which came in at +2.9% compared to last month’s reading of +3.1%.  So while unemployment remains low and new jobs continue to be added, workers are taking home less pay.  That is good for companies and bad for workers.  The big question for the year ahead will be if those wages will be enough to continue to grow the economy through consumer spending.

• The reason for the season.  Yep, it is that time again… cue the music… earnings season. This week, tomorrow to be more specific, we will kick off Q4 earnings season with the big banks leading the procession.  Investors will be keen to determine if last years rate hikes will have any effects on the profitability of the banks.  Though it may seem that banks make a lot of money charging ATM fees, their real core business is still lending.  Profitability in lending comes from banks borrowing at lower rates and lending at higher rates.  With the Fed lowering key interest rates many wonder if banks’ net interest margins will be affected.  The silver lining may be the shape of the yield curve.  Remember that banks typically borrow money in short maturities such as time deposits and savings and lend them in longer maturities such as mortgages, business loans, and auto loans.  That means that a steeper yield curve should, in theory, allow banks to be more profitable in lending.  If you look at chart 18 in my attached daily chartbook, you will note that the spread between 10 year and 3 month maturity yields bottomed out in Q3 and widened throughout Q4.  Will this be good for banks?  We will see starting tomorrow when JP Morgan Chase becomes the first bank to release earnings at 7:00 AM.

 

THE MARKETS

 

Stocks sold off in Friday’s session in response to a lower than expected employment number. The S&P500 traded off by -0.29%, the Dow Jones Industrial Average dropped by -0.46%, the Russell 2000 slipped by -0.44%, and the NASDAQ Composite Index lost -0.27%.  Bonds climbed for a second day and 10-year yields fell back by -3 basis points to 1.81%.

 

NXT UP

 

– Atlanta Fed’s Raphael Bostic and Boston Fed President Eric Rosengren will both speak today.

– The week ahead will feature the start of Q4 earnings season along with a host of economic numbers including CPI, PPI, Retail Sales, some regional Fed reports, the Fed Beige Book, Housing Starts, Building Permits, Industrial Production, JOLTS Job Openings, and the University of Michigan Sentiment Index.  That is a lot to look forward to so check back daily and please refer to the attached calendars of economic and earnings releases for details.

 

daily chartbook 2020-01-13

econ numbers 1_13

earnings releases 1_13