Market Commentary for Week Ended 11/1/2019

This week was all about the Federal Reserve’s interest rate announcement and some heavy hitting economic data.  The Federal Open Market Committee (FOMC) decided to lower rates from 1.75% to 1.5%.  This was a widely expected action, and therefore previously priced into the market.  The FOMC also signaled that that it believes 1.5% to be the appropriate rate for the indefinite future and that the mid-cycle adjustment to lower rates has concluded.  The fed believes that the economy needed some monetary stimulus due to the uncertain outlook surrounding the trade war and general weakness in the global economy.

What is ironic is that the following day (today) we saw a very strong jobs report (details below).  An interesting counterfactual question: Would the FOMC have cut rates if their decision was scheduled for after the jobs report? I think it would have been tougher to justify. I am personally confused by the loose fiscal and monetary policy while the unemployment rate is near multi-decade lows.

Economic Data Recap

Here is a summary of the notable economic data points released during the week.

1. 10/30 Gross Domestic Product (GDP): Wednesday’s GDP report was at the top end of the consensus estimated range at 1.9%.  This is 0.1% lower than the second quarter.  Consumer spending, which accounts for over 70% of the total rose 2.9%, highlighted the strength of the consumer

2. 11/1 Employment Situation Report:  Here is a summary of the report: (source: us.econoday.com)

As you can see the headline number of 128k jobs added in September was well ahead of economist’s consensus of 90k.  This is despite a 46K reduction as a result of the General Motors strike.  Additionally, August was revised higher to 180k from 136k. 

Here is a look of the long-term trend of the monthly change in job (Source: The Wall Street Journal)

Both the GDP report and the Employment Situation report point to a very healthy consumer.

3. 11/1 ISM Manufacturing Index:  The reading came in below consensus at 48.3.  A reading below 50 indicates contraction so the manufacturing sector of the economy continues to be soft.  A positive section of the report was new export orders, which jumped more than 9 points to above the 50 benchmark.