STOCKS FINISH STRONG ON SURPRISING JOBS REPORT

Markets ended last week on a high note, marking the sixth straight week of gains and the longest winning streak for the major averages since late 2014.[1] For the week, the S&P 500 grew 0.95%, the Dow gained 1.40%, and the NASDAQ grew 1.85%.^[2]

Since August’s pullback, the S&P 500 has regained 12.40%.^[3] While headwinds still exist, and we don’t think that stock investors should breathe a sigh of relief yet, we’re happy to see that markets have regained some lost ground.

Underpinning the renewed investor optimism are some strong domestic fundamentals. After a lousy September report, a surprisingly strong October employment report showed that the economy gained 271,000 jobs. The number came in well above expectations of 180,000 and shows that the labor market continues to improve. Even better, wages grew 2.5% from a year ago – the highest year-over-year increase since 2009.^[4] The strong jobs report gave immediate rise to speculations about interest rate hikes.

In a speech before the House, Federal Reserve Chair Janet Yellen said that a December rate hike is still on the table. Will pulling the trigger roil markets? Maybe. Though the past can’t predict the future, we can look back and see that investors have often reacted nervously to any move (or expectation of a move) by the Fed. While a rate increase is a vote of confidence in the economy, it’s also a source of worry for some economists. China’s slowing growth and fragility among other emerging market economies mean that raising borrowing costs could have ripple effects across the global economy.

In her testimony, Yellen emphasized that the U.S. economy is growing well, though she indicated that soft global trade and exports are potential headwinds. Overall, it looks like the Fed isn’t committing to a date for a rate hike yet and will wait to see what the data shows in the coming weeks.^[5]

ECONOMIC CALENDAR:

Tuesday: Import and Export Prices
Thursday: Jobless Claims, JOLTS, EIA Petroleum Status Report, Treasury Budget
Friday: PPI-FD, Retail Sales, Business Inventories, Consumer Sentiment

_{Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.}

HEADLINES:

Productivity grows slowly in Q3. Third-quarter output per worker grew 1.6%, possibly indicating why wage growth remains stubbornly weak. Labor productivity grew 3.5% in the second quarter.^[6]

Sluggish demand drags on China. New data highlights China’s decelerating economy as imports fall 16% and exports fall 3.6% in October. Trade dropped 9% overall, marking the eighth straight month of decline.^[7]

Manufacturing brakes in October. A measure of factory activity showed that the sector slowed last month to the lowest level since 2013. However, a rise in new orders offers hope for the fourth quarter.^[8]

Construction spending rises in September. Spending on new construction skyrocketed, growing faster than expected. September activity reached the highest level since 2008, suggesting that third-quarter economic growth might be higher than originally estimated.^[9]

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