MARKETS MIXED AS ECONOMIC DATA IS MIXED AND THE U.S. ANNOUNCES TARIFFS AIMED AT EUROPE

• The markets turned in a mixed week, with the narrowly–defined DJIA, the broader S&P 500 and the smaller–cap Russell 2000 all losing ground while the tech–laden NASDAQ and fixed–income markets moved up
• It was a volatile week, with the equity markets dropping over 4% at one point before rallying on the heels of a positive jobs report
• The Russell 2000 led the losers, dropping 1.3%, followed by the DJIA\’s loss of 0.9%, the S&P 500\’s decline of 0.3% and NASDAQ\’s gain of 0.5%
• Cyclical sectors led the decline as worrisome manufacturing data contracted for the second month in a row
• Five of the 11 S&P 500 sectors finished lower, with the Energy Sector once again leading the losers as it dropped 3.8%, followed by Materials (–2.5%) and Industrials (–2.4%)
• On the positive side, September\’s jobs report showed that the labor market remains very tight
• The markets also digested an announcement from the White House on a new round of tariffs aimed at $7.5 billion in European goods that will take effect on October 18th
• In addition, the Trump administration still plans to raise tariffs to 30% from 25% on $250 billion worth of Chinese goods on October 15th
• U.S. Treasury yields continued to decline and the 2–year Treasury yield fell to 1.39% and the 10–year Treasury fell to 1.53%
• The futures markets ended the week with a 90% probability that the Fed would cut rates again at its October 30th meeting
• The U.S. Dollar Index declined 0.3% to 98.74
• WTI crude plummeted 5.6% to $52.78/barrel

Weekly Market Performance

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Unemployment Not This Low Since 1969

The September Jobs Report was released Friday to generally positive, but some mixed, reviews. The Department of Labor reported that the economy created 136,000 jobs last month, which of course is positive for the economy.

But the 136,000 was still below the consensus expectations of 145,000 and below 160,000, which is the average monthly gains so far in 2019. Further, the 136,000 was far below 2018\’s average monthly gains of 223,000.

Delving further into the Jobs Report, however, showed more positive news, specifically that weekly jobless claims, which many economists consider to be a leading indicator of the direction of the economy, is healthily below historical averages.

Finally, the Department of Labor also revised their numbers for the previous two months (revisions are common) and added 45,000 jobs to their previous numbers, which pushed the unemployment number down from 3.7% to 3.5%.

And that 3.5% happens to be the lowest level in 50 years. In fact, the last time the rate was this low was in December 1969, when it also was 3.5%

Weak Manufacturing Data

Two reports that gave investors pause were the ISM Manufacturing Index and the ISM Non–Manufacturing Index.

• The ISM Manufacturing Index for September declined to 47.8% from 49.1% in August for its worst reading since June 2009
• The ISM Non–Manufacturing Index for September fell to 52.6% from 56.4% in August

These declines showed a contraction in the manufacturing sector for the second straight month, and it caused U.S. stock markets to drop more than 2.5% in two days. And while it\’s true that manufacturing accounts for less of the economy today as it did decades ago, it is still an important sign post with respect to the overall health of the economy. Today, manufacturing accounts for about 10% of the economy and close to 10% of all jobs.

It’s no surprise that manufacturing is very susceptible to trade conflict as well as the slowdown in growth from other parts of the world.

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More Tariffs, But These are Aimed at the EU

The World Trade Organization ruled that the U.S. can place tariffs on $7.5 billion of EU imports in retaliation for government aid from certain EU countries to Boeing rival Airbus.

Soon after this ruling was made, the U.S. announced that it will be placing 25% tariffs on a cornucopia of products from the EU, including cheese, olives, wine, coffees, single–malt whiskeys, liqueurs, cordials, yogurt, butter, blankets, hand tools, backhoes and of course, civil aircraft.

The tariffs will be in place on October 18th.

The new tariffs are the most dramatic trade action against the EU since the Trump administration levied tariffs aimed at steel and aluminum last year.

Chinese Stock Markets to Reopen Next Week

China\’s main stock markets are set to reopen on October 8th, after being closed from October 1st through 7th to commemorate the 70th anniversary of the founding of the People\’s Republic of China.

Trade talks are s

cheduled to resume on October 10th as the U.S. prepares to increase tariffs on $250 billion in Chinese goods to 30% on October 15th. The tariff increase was originally scheduled to take effect on October 1st, but the Trump administration delayed the increase to avoid it taking effect at the beginning of China\’s 70th anniversary celebration.

Sources

bls.gov; factset.com; dol.gov; standardandpoors.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com