A relatively uneventful week was culminated with the release of the September unemployment report. The three adjectives that I have heard the most to describe the September employment report were "weak," "disappointing" and "lackluster." In my opinion, the employment numbers accurately describe economic reality and, as a result, increase uncertainty for market direction going forward. The change in non-farm payrolls was +142,000 versus an expectation of 201,000. In addition, the July and August reports were revised downward by 59,000. This revision was a bigger surprise, given that market consensus was for the overall change to be positive. The labor force participation rate also declined to its lowest levels since the 1970s. If that wasn’t enough weak news, average hourly earnings remained unchanged month over month. The only bright spot was that the unemployment rate remained at 5.1%.
I have learned over the years to not overreact to one piece of unexpected economic data, and I don’t plan on changing that over these numbers; however, this data should be looked at seriously in conjunction with upcoming economic reports and third quarter earnings to determine the longer-term implication for markets. Remember that offsetting this report are unemployment claims remaining below 300,000 (which should indicate solid job growth) and the ADP report on employment released on Wednesday last week increased by 200,000.
Stock prices and bond yields both fell on the employment news; however, stocks reversed earlier losses and bond yields followed stocks higher as the trading session went on. I expect the stock and bond market to remain choppy in a relatively tight range over the next several weeks. I continue to prefer selling rallies in both stocks and bonds in the near term. We will be updating our forecast for the markets in the next few days, so stay tuned for our quarterly review and updated forecasts.
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