Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices finished lower last week, despite ending higher in Friday’s trading. The S&P 500 Index was down for a second straight week and the Nasdaq broke a streak of seven straight weekly gains. The S&P 500 was down 1.4% in total return for the week, while the Nasdaq Composite was down 1.5% and the Dow Jones Industrial Average ended just modestly lower. U.S. Treasuries extended their recent weakness, despite a much weaker than expected jobs report, with market participants likely brushing off some of the weakness due to hurricane and strike impacts.
The U.S. economic calendar was busy last week. Nonfarm payrolls were up only 12,000 in October, compared to consensus expectations for a 110- to 120,000 rise, with significant weather and strike impacts noted. There were notable downward revisions to the prior two months, seen as consistent with recent labor market cooling. The unemployment rate was unchanged at 4.1%, in line with expectations. Average hourly earnings rose 4.0% from a year earlier, also as expected. In other economic news, the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index came in below consensus expectations for October with production dragging, though measures for new orders and employment both rose from September. The Job Openings and Labor Turnover Survey, or JOLTS report, published a month in arrears, showed job openings at the lowest in 42 months in September. The first reading on third quarter U.S. gross domestic product was better than expected with the 2.8% seasonally adjusted annualized rate supported by a positive impact from consumer spending. September core personal consumption expenditures rose 2.7% from a year earlier, slightly ahead of consensus.
Third quarter earnings season continued last week, with 70% of S&P 500 companies now having reported results. As of Friday, 75% of reporters have surprised to the upside on earnings and the blended earnings growth rate is at 5.1% year-over-year. Five of the seven so-called “Magnificent 7” names reported last week and all beat on earnings results. Big tech earnings results provided support for the theme around Artificial Intelligence secular growth, though there was some discussion and pullbacks around it being a crowded trade.
In the week ahead, the U.S. Presidential election will be in focus on Tuesday. With many recent polls showing a close race between former President Donald Trump and Vice President Kamala Harris, markets may be primed for volatility early this week. On Thursday, the Federal Reserve is expected to cut rates again, with consensus expectations for a 25-basis point cut to the Fed Funds rate. Chairman Jerome Powell’s commentary following the meeting will be closely watched.
As always, we’ll be watching and reporting back to you. Thank you.
