The Week In Review
Stocks ended the week on a down note, giving back a small portion of their weekly gains. Losses were modest, however, with the S&P 500 (-0.1%) and the Dow (unch) settling just a tick below their unchanged marks. The tech-heavy Nasdaq (+0.1%) eked out a small victory, settling at yet another record high. For the week, the S&P 500 added 1.2%.
The market took the September jobs report with a grain of salt due to the effects of Hurricane Harvey and Hurricane Irma. The report showed that employment in food services and drinking places declined by 105,000--taking a toll on the nonfarm payrolls figure, which decreased by 33,000 (Briefing.com consensus +75K).
Average hourly earnings, which have been slow to pick up despite a tightening of the labor market, soundly beat expectations though, showing an increase of 0.5% (Briefing.com consensus +0.2%). This figure was also likely affected by the hurricanes, but that didn't stop the market from adjusting its rate-hike expectations.
The CME FedWatch Tool currently places the chances of a December rate hike at 93.1%, up from 77.5% on Thursday.
U.S. Treasuries ended the session in negative territory, with shorter-dated issues showing relative weakness; the yield on the 2-yr Treasury note jumped four basis points to 1.53% while the benchmark 10-yr yield climbed two basis points to 2.37%. The U.S. Dollar Index slipped 0.1% to 93.64.
Most of the S&P 500's eleven sectors finished in the red, but some of the heaviest spaces by weight--including technology (+0.3%), financials (unch), and consumer discretionary (+0.2%)--put together relatively solid performances, helping keep the broader market's loss in check.
The tech group climbed 0.3%, thanks in large part to mega-cap names like Facebook (FB 172.23, +0.99) and Alphabet (GOOGL 993.64, +8.45), which added 0.6% and 0.9%, respectively. Chipmakers were also strong on Friday, sending the PHLX Semiconductor Index higher by 0.5%.
Meanwhile, influential names like Amazon (AMZN 989.58, +8.73), Netflix (NFLX 198.02, +3.63), and McDonald's (MCD 159.60, +0.80) helped carry the consumer discretionary space (+0.2%) to victory, settling with gains between 0.5% and 1.9%. NFLX shares had a solid week, adding 9.2%.
On the flip side, the consumer staples space (-1.0%) underperformed with retail heavyweight Costco (COST 157.09, -9.98) dropping 6.0%, despite beating both top and bottom line estimates. Retail pharmacy names also tumbled after Morgan Stanley downgraded Walgreens Boot Alliance (WBA 73.20, -3.75) to 'Equal-Weight' from 'Overweight'; WBA shares lost 4.9%.
The energy sector (-0.8%) also struggled as the price of WTI crude dropped 2.9% to $49.33/bbl amid concerns of Tropical Storm Nate's potential impact on refineries around the Gulf of Mexico. Tropical Storm Nate is projected to hit the Gulf Coast this weekend as a hurricane.
Reviewing Friday's economic data, which included the September Employment Situation Report, the August Wholesale Inventories Report, and the August Consumer Credit Report:
- September Employment Situation
- September nonfarm payrolls decreased by 33,000 while the Briefing.com consensus expected an increase of 75,000. The prior month's increase was revised to 169,000 from 156,000.
- Nonfarm private payrolls declined by 40,000 while the Briefing.com consensus expected an increase of 98,000. The previous month's increase was revised to 164,000 from 165,000.
- Average hourly earnings increased 0.5% (Briefing.com consensus +0.2%), while the previous month's reading was revised to +0.2% (from +0.1%).
- The average workweek was reported at 34.4 (Briefing.com consensus 34.3). The previous month's reading was left unrevised at 34.4.
- The unemployment rate fell to 4.2% (Briefing.com consensus 4.4%) from 4.4% in the previous month.
- The hurricane-related noise of the September employment resonated in the headline payroll numbers, yet the most important takeaway from the report is that wage growth picked up nicely in September and should solidify the case for another rate hike in December.
- August Wholesale Inventories
- August Wholesale Inventories increased 0.9% (Briefing.com consensus +1.0%). The prior month's reading was left unrevised at +0.6%.
- The key takeaway from the report is that the inventory build will be a positive component for Q3 GDP growth forecasts.
- August Consumer Credit
- The Consumer Credit report for August showed an increase of $13.1 billion while the Briefing.com consensus expected growth of $16.0 billion. The prior month's credit growth was revised to $17.7 billion from $18.5 billion.
Investors will not receive any economic data on Monday.
- Nasdaq Composite +22.4% YTD
- Dow Jones Industrial Average +15.2% YTD
- S&P 500 +13.9% YTD
- Russell 2000 +11.3% YTD
Week In Review: Autumn's Still Looking Pretty Green
Stocks started October on the front foot, climbing to new record highs once again, despite the devastating shooting in Las Vegas on Sunday evening, which claimed the lives of more than 50 people and injured over 500 others. The major indices all settled the week in the green with the Dow, the Nasdaq, and the S&P 500 adding 1.7%, 1.5%, and 1.2%, respectively.
This week's bullish bias had its roots in last week's run to record highs, which was sparked by the release of the GOP's latest tax reform outline. The House kept the ball rolling this week by passing a budget that slashes government spending in anticipation of decreased tax revenue. The GOP still has a long way to go, but the market liked the progress.
Excited by the idea of a tax overhaul, the S&P 500's financial sector climbed 1.9% this week to finish comfortably ahead of the broader market. The financial sector has added 10.6% since closing at a three month low on September 7 and now trades just a tick behind the benchmark index for the year.
Automakers were strong this week after reporting largely solid U.S. sales figures for the month of September, which were helped by the replacement of vehicles lost to Hurricane Harvey and Hurricane Irma. General Motors (GM) showed particular strength, climbing 11.3%, after reporting a year-over-year increase of 12.0%.
Netflix (NFLX) also had a good showing, hitting a fresh all-time high, after UBS raised its target price to $225 from $190 and following news that the company will raise the price of its standard and premium video-streaming services. NFLX shares settled with a gain of 9.2%.
Equities did end the week on a down note, however, following a noisy Employment Situation Report for September. The market took the report with a grain of salt since it was tainted by the impacts of Hurricane Harvey and Hurricane Irma, but it didn't do much to alleviate rate-hike concerns nonetheless, showing an increase of 0.5% in average hourly earnings.
As a reminder, average hourly earnings growth, which is positively correlated with inflation, has been tepid in recent months, putting the Fed's rate-hike forecast into question. However, following Friday's jobs report, the market now strongly believes the U.S. central bank will hike rates one more time this year, thereby achieving its goal of three rate hikes in 2017.
The fed funds futures market places the chances of a December rate hike at 93.1%, up from last week's 77.9%.
It's also worth pointing out that the CBOE Volatility Index (VIX) settled at an all-time low (9.19) on Thursday, signaling the market's belief that volatility will remain subdued in the short term. The previous record low (9.31) was recorded nearly 24 years ago in December 1993.