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Weekly Market Commentary October 8, 2018

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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.


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