Stocks drifted lower last week. Though marginally. And now sit a mere 1.66 percent beneath the August record high.
Monday of this week, October 10, has historically represented the best day of the year to buy stocks. Yet, with stocks a couple points below historic highs, we'll see if that holds up. As we recall a similar situation in 2007, whereby 10/10 turned out to be the top. And a 17-month bear market ensued.
Historically, the pattern has brought rough Septembers. Followed by difficult first halves of October. After which the following two-and-a-half months tend to be the best time of the year for equities.
Accordingly, Mr. Market has used the last three weeks to provide a healthy Halloween scare. Yet, we remain relatively sanguine about the market's prospects. As investment grade and junk bonds have held up. And new corporate bond issuance remains on track. Both of which typically portend healthy equity markets.
On the economic front, the Job Openings and Labor Turnover Survey (JOLTS) was released. August job openings fell to an eight-month low. Hitting 5.44 million. Down from 5.83 million in July and below the 5.80 million consensus. Professional and business services incurred the largest drop at 223,000. The quits rate (people leaving employment) was 2.1 percent, the same as the prior month. While the layoffs rate was 1.1%.
Further, nonfarm payrolls increased 156k in September. Less than the 172k expected. Pushing the unemployment rate up to 5 percent.
Summing up, the numbers were soft. Supportive of putting a hold on interest rate hikes. Yet Fed officials speak as if a year-end rate hike is baked in. Which equity markets do not wish to hear.
The question? Is the U.S. economy strong enough to handle the psychological messaging that will accompany continued rate hikes?
With GDP growth stuck below 1.5 percent annualized, and anecdotal evidence (i.e. restaurant receipts) revealing an increasingly cautionary consumer stance, we wonder what might be the impact of a year-end rate? Because the Fed explains that it has kept rates low this long in order to spur economic growth. Yet, such growth has been elusive. So, now the Fed plans to abandon that playbook and begin to normalize interest rates?
Something does not jive.
Given the absolute hot mess into which this election has descended, one cannot fault the reticent spending on behalf of consumers and companies. In fact, the same occurred in Great Britain prior to Brexit. And you kid yourself if you don't see the parallels between this election and the Brexit vote. With a portion of the U.S. electorate, particularly white, working class voters, ready to break some windows and flip some cars, so fed up are they with the political insensitivity and lack of positive results wrought by the nation's political class. Tired of the "us and them" mentality held by D.C. bureaucrats and other so-called political elites.
I saw anecdotal evidence of such a mentality this weekend. Which I spent at the Greenbrier resort, nested in the foot hills of West Virginia's Smokey Mountains.
The Greenbrier is a beautiful property. Chock full of activities for every age and proclivity. But its most interesting aspect remains the multi-decade secret the property held from the American public.
In 1958, construction was begun on a 113,000 square-foot bunker. Built 720 feet into the hillside beneath The Greenbrier's West Virginia Wing. Completed in 1961, the facility was built at the height of the Cold War to provide a safe house for the U.S. Congress in the event of a nuclear strike.
Once finished, the facility was maintained in a constant state of readiness by a small cadre of government employees working undercover as Forsythe Associates. The bunker was prepared to house members of both Congress and the Senate. Complete with a smaller version of D.C.'s Congressional Chamber. Communications facilities for television and radio broadcasts. 30-days supply of fresh food. 40 days of oxygen. Decontamination chambers. An armory. And the constantly updated medical and pharmaceutical needs of every member of the legislative branch.
After 30 years, the bunker's existence was exposed by The Washington Post. Once declassified, the government no longer had any use for the facility. And turned it back over to The Greenbrier Resort. More on that fascinating facility's exposure here.
So... while I appreciate the contingency plans for continuance of government, I could not help but wonder how many of these types of places actually exist? Secret facilities meant to keep member of the government in good stead while the civilization above went up in flames?
No wonder we've hit a populist boiling point. Us versus them. Such a mentality was not catalyzed by the electorate. And today, the reaction against that mentality threatens to spill over the gunwales.
Finally, some cultural color.
Singer/songwriter Bob Dylan has been awarded a Nobel Prize for Literature. Dylan becomes the first American to win the prize since the novelist Toni Morrison, in 1993. The announcement, in Stockholm, was a surprise. Though Dylan, 75, has oft been mentioned as having an outside shot at the prize. While his work does not fit into the literary canons of novels, poetry and short stories that the prize has traditionally recognized.
Critics may compare this to the committee's having awarded a Nobel Peace Prize to President Obama back in 2009. Before he'd truly accomplished anything. We would disagree. And believe that journalist Bill Wyman made an apt case for Dylan to receive the reward in 2013.
"Mr. Dylan's work remains utterly lacking in conventionality, moral sleight of hand, pop pabulum or sops to his audience. His lyricism is exquisite; his concerns and subjects are demonstrably timeless; and few poets of any era have seen their work bear more influence."
Congratulations, Mr. Tambourine Man.
Census Data Reveals Enhancements for the Middle Class
Some of the best data points received in September were from the U.S. Census Bureau's report. Arriving only nine-months after the original data collection. Rendering it infantile by government standards.
The report revealed a number of tidbits that speak directly to the improving stead of the average American household. Not just the top-twenty percent. Which, as long-time readers know, represents the lone segment of the population that's prospered throughout this anemic economic recovery. Yet, now we've better news to report.
Real median household income soared in 2015. While the poverty rate plummeted.
Inflation-adjusted, median household income rose 5.2 percent - the largest gain since these statistics were first reported in 1967. The first time these numbers have been reported following several years of robust, full-time employment gains. Better yet, the best gains were for those in the bottom fifth of all earners. With women enjoying meaningfully better gains than men. So narrowing the gender gap to its lowest on record. All of which may begin to dispel the notion of a permanent income inequality.
Further, the official poverty rate dropped to 13.5 percent of the population. Down from 2014's reading of 14.8 percent. Meaning that roughly 3.5 million Americans climbed above the poverty line.
The bad news? 43.1 million people still languish beneath that Mendoza line. But for now, we'll take any progress as good news. Another triumph for the optimists. Cause we're moving' on up...
Major indexes fell last week. As the DJIA fell 0.37%, and the S&P 500 lost 0.59%. The Nasdaq fell 0.37%. While small cap stocks lost 1.14%. 10-year Treasury bond yield climbed 12 basis points to 1.72%. Gold closed down $21.79 per ounce, or 1.63%.