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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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The Week In Review

11/4/16

The stock market finished a downbeat week on a flat note as the S&P 500 (-0.2%) surrendered its intraday gain to extend its losing streak to nine sessions. The benchmark index only declined 1.9% over that period, but this is the longest string of losses since December 1980. The Dow Jones Industrial Average (-0.2%) and the Nasdaq Composite (-0.2%) didn't fare much better, losing a respective 1.4% and 2.8% over that period.

Equity indices began the day on a modestly higher note as a mixed reading of the Employment Situation Report for October did little to alter the rate hike picture for December.

The headline jobs reading came in below consensus as 161,000 nonfarm payrolls were reportedly added in October (Briefing.com consensus 175k). However, the report did feature an upside revision to the prior month's reading, signaling that nonfarm payrolls rose by 191,000 in September (from 156,000). Furthermore, average hourly earnings rose by 0.4% (Briefing.com consensus +0.3%), pushing year-over-year growth to 2.8%. The reading remains in focus as it could help raise inflation expectations going forward.

Fed funds futures retreated in the wake of the data, extending their decline as stocks slipped into the close. According to the CME's FedWatch Tool, the implied probability of an interest rate hike in December declined to 66.8% from 71.5%. Meanwhile, Treasuries and currencies maintained a risk-off posture ahead of next week's U.S. presidential election.

The benchmark index held modest gains for the bulk of today's session as a reversal from its 200-day simple moving average (2083.20) helped stoke buying interest at the start. However, the broader market pulled back in the last two hours of trade as investors looked ahead to next week's election. The race has tightened in recent days, and resulting uncertainty helped fuel the recent downturn. On that note, the CBOE Volatility Index (22.91, +0.83, +3.8%) has jumped nearly seven points since last week's settlement (16.19).

The major averages finished near session lows as six sectors ended in the red. The consumer staples (-1.0%) sector ended behind financials (-0.5%) and energy (-0.5%) while health care (+0.8%), materials (+0.3%) and industrials (+0.2%) led the pack. 

The economically-sensitive financial space (-0.5%) rounded out the leaderboard as a downturn in banking names weighed on the group. Wells Fargo (WFC 44.60, -0.74) underperformed in the sub-group, sliding 1.6%. Recall that reports indicated earlier in the week that the SEC may launch a probe into the bank's sales practices. A downturn in crude oil and some modest flattening in the yield curve also contributed to today's weakness.

Crude oil contributed to weakness in the energy sector (-0.4%), falling 1.3% to $44.08/bbl as doubts continued to surface regarding OPEC's previously discussed production cap agreement. The energy component ended the week down 9.5%.

In the health care sector (+0.9%), generic pharmaceutical names led as Mylan (MYL 35.00, +0.86, +2.5%) rebounded from yesterday's selloff. The name was under pressure after the U.S. Department of Justice announced a probe into possible collusion among generic manufacturers. Meanwhile, managed care name Humana (HUM 167.42, +2.11) rallied 1.3% after beating analysts' estimates for the quarter and reaffirming its full-year guidance.

The industrial sector (+0.2%) outperformed as Dow component General Electric (GE 28.44, +0.16, +0.6%) finished ahead of the price-weighted average. The stock was rebounding after the company announced its decision to combine its oil and gas business with Baker Hughes (BHI 58.11, +2.90, +5.3%).

Treasuries finished on a higher note as the long end of the curve outperformed. The yield on the 2-yr note finished lower by two basis points (0.79%) while the yield on the 10-yr note ended lower by four basis points (1.77%).

Today's trading volume was above the average of 861 million as more than 892 million shares changed hands at the NYSE floor.

Today's economic data included the Employment Situation Report for October and the Trade Balance for September:

Nonfarm payrolls increased by 161,000 (Briefing.com consensus 175,000). Job gains have averaged 181,000 per month so far this year versus an average of 229,000 per month in 2015.

September nonfarm payrolls revised to 191,000 from 156,000

August nonfarm payrolls revised to 176,000 from 167,000

Private sector payrolls increased by 142,000 (Briefing.com consensus 170,000)

September private sector payrolls revised to 188,000 from 167,000

August private sector payrolls revised to 132,000 from 144,000

Unemployment rate was 4.9% (Briefing.com consensus 4.9%) versus 5.0% in September

Persons unemployed for 27 weeks or more accounted for 25.2% of the unemployed versus 24.9% in September

October average hourly earnings were up 0.4% (Briefing.com consensus +0.3%) after being up 0.3% in September

Over the last 12 months, average hourly earnings have risen 2.8% versus 2.7% for the 12-month period ending in September

The year-over-year growth rate in average hourly earnings in October is the highest since June 2009

The average workweek was 34.4 hours (Briefing.com consensus 34.4)

The labor force participation rate was 62.8% versus 62.9% in September

The Trade Balance report for September showed a narrowing in the deficit to $36.4 billion (Briefing.com consensus -$38.5 billion) from $40.5 billion in August

For more on these economic releases, be sure to visit Briefing.com's Economic Calendar page.

Monday's economic calendar is limited to Consumer Credit for September (Briefing.com consensus $17.5 billion), which will cross the wires at 15:00 ET.

 

Week in Review: Pre-Election Jitters Set In

 

The stock market registered its second consecutive weekly decline as the looming election contributed to increased caution among participants. The S&P 500 lost 1.9% for the week while the Nasdaq Composite (-2.8%) underperformed.

 

With the presidential election coming up on Tuesday, participants saw no reason to rush into stocks, especially when confronted with last Friday's news that the FBI is once again investigating Hillary Clinton after a new batch of emails was uncovered. The news led to a tightening in polls while market participants who had priced in an easy Clinton victory were forced to adjust their positions.

 

The down week appeared to be on track for a higher close on Friday, after the S&P 500 resisted a move below its 200-day moving average (2083). However, the index slid from its high in afternoon action, but avoided a close beneath the 200-day average. The Friday volatility took place after the release of the Employment Situation report for October, which was mixed relative to expectations. Nonfarm Payrolls increased by a below-consensus 161,000 (Briefing.com consensus 175,000), but average hourly earnings increased at a faster-than-expected 0.4% (Briefing.com consensus 0.3%).

 

Although the upcoming election received a lot of attention, market participants also had to deal with the last heavy batch of third-quarter earnings. Facebook (FB) was one of the most notable companies to report, but its shares retreated as cautious guidance overshadowed better than expected results.

 

The busy week also featured the latest policy decision from the Federal Reserve, but to no one's surprise, the central bank held pat, showing little willingness to rock the policy boat ahead of the election. The policy statement did say that the case for a rate hike has strengthened, but the probability of a December rate raise declined, as indicated by the fed funds futures market. The implied likelihood of a December hike ended the week at 66.8%, down from last week's 74.2%.