The fourth quarter seems to be off to a more volatile start after a calm third quarter. Many indices were down more than 1% on Thursday, although the S&P 500 continued to avoid a daily decline of 1%. Federal Reserve Chairman Jerome Powell said rates have a long way to go to get to neutral, suggesting more rate hikes, which is less favorable for stocks. The VIX, a measure of market volatility, also hit a high of 16.85, after historic lows.

The S&P 500 dropped 1% last week. The MSCI ACWI dropped 1.8%. The bad news in stocks also affected bonds negatively. The Bloomberg BarCap Aggregate Bond Index dropped 1%. Bonds and stocks both tend to drop when rates rise. Last week’s performance shows how longer-term bonds don’t offer the same downside protection in an economy growing faster than expected.

Key Points for the Week

• U.S. employment data showed continued strength in the labor markets.
• Lower than normal job growth was affected by Hurricane Florence.
• Expectations of continued rate hikes pushed volatility higher.

Economy

The unemployment rate dropped to 3.7%, a near 50-year low. Wages matched expectations for year-over-year growth at 2.8%. U.S. nonfarm payroll, which comprises most jobs, rose 134,000 in September, more than 45,000 below expectations. Most of the shortfall can be attributed to Hurricane Florence and lower labor force participation.

September’s employment data was released last week showing the lowest unemployment rate since 1969, an increase in wages, and a slowdown in new jobs. This data is important to monitor as these metrics indicate the overall health of the economy and play a key role in determining how the Fed manages monetary policy.

Wage growth is a key determinant of inflation. The economic data for September suggests an even tighter labor market and a continued robust economy. This is putting pressure on wages, which puts pressure on rates. The Fed is likely to stay on track with its current plan of hikes.

Fun Story

Utah football fans find $1,060 destroyed in shredder

A pair of University of Utah football fans had saved up to $1,060 to go to a game. They had the cash placed in an envelope, but when they tried to pay for the tickets, the cash was missing. Turns out the culprit was their 2-year-old son, who had put the bills through the shredder. The couple posted the loss on Twitter, and it looks like they will earn their money back, as many users have called on them to start a GoFundMe page.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

MSCI ACWI INDEX

The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.

Bloomberg U.S. Aggregate Bond Index

The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

https://www.cnbc.com/2018/10/05/us-nonfarm-payrolls-september-2018.html