The Bureau of Labor Statistics (BLS) report for October shows 128,000 job gains; and that number includes absorption for negative impacts due to -20,000 census workers coming off federal payrolls, and -42,000 striking auto-workers. Far better employment numbers than all projections and estimations.

Additionally, the prior two months had massive upward revisions. August was revised up by 51,000 (from +168,000 to +219,000), and the change for September was revised up by 44,000 (from +136,000 to +180,000). With these revisions, employment gains in August and September combined were 95,000 more than previously reported.

Scanning the punditry across the financial press this morning, I find no one who doesn’t agree that today’s Non-Farm Payrolls report from the BLS is remarkable and unexpectedly good. It’s not just the pundits either. Citigroup economist Andrew Hollenhorst said:

“The October jobs report is unambiguously positive for the US economic outlook. Above-consensus hiring in October, together with upward revisions to prior months, is consistent with our view that job growth will maintain a pace of 130-150K per month. Wage growth remaining at 3.0% should further support incomes and consumption-led growth.”

 Other Things We’re Watching:

 > Impeachment: is obviously a popular word this week as Democrats finally voted to ‘formalize’ the early steps of what could be a long process. It’s hard to imagine them finding the success they may be hoping for. It’s telling that Trump’s approval numbers seem not to have been affected at all, at least not yet.

> Across the pond: The Brexit drama will be continuing for a while longer. The ‘deadline’ of October 31 has come and gone. It now may be settled in January. Watch this space.

> Negative Interest: President Trump is still on Fed Chair Powell’s case even after the Fed cut rates again this week. (Probably the last for a while). The president thinks that those negative rates in Germany, Denmark and a few other Euro-Zone countries are problematical. We think he has a point (more on this in our Market Minute below). But we are pleased to note that the European Central Bank will have some new thinking. Eight-year veteran Mario Draghi is stepping down from the leader’s chair to make room for the very highly regarded Christine Lagarde who has been top dog at the IMF for years. Ms. Lagarde is not a fan of negative rates.

> Dancing with Dragons: Tempering recent optimism around trade was a Bloomberg report that said Chinese officials have doubts about whether it is possible to reach a comprehensive long-term trade deal with Washington. However, Trump said the two countries would soon announce a new site where a “Phase One” trade deal will be signed after Chile canceled a planned summit set for mid-November. Meanwhile, Investing.com notes the following:

  • China’s private-sector factories picked up the pace in October, with both domestic and foreign demand rising significantly, according to a survey by research firm IHS Markit and Caixin. Their manufacturing purchasing managers’ index rose to 51.7 from 51.4 in September. That indicates the fastest rate of expansion since October 2017 and defied expectations for another trade-war-related drop.
  • The improvement was due in part to the U.S. decision to exempt, temporarily, over 400 types of Chinese products from the latest round of import tariffs. Recent press reports playing up the reluctance of both sides to give much away on trade naturally cast doubt over whether that exemption will stick, notwithstanding the pressure on both countries’ leaderships to relieve the pressure on their economies by declaring some kind of truce.

 

Ron’s Market Minute – Another Day, Another Fed Meeting

 I don’t know many who have been more positive on the stock market than I have. In spite of exceptionally loud calls from the naysayers and doom and gloom crowd, the data have not supported the negative case. That will change one day and perhaps sooner than later, but it’s not in the here and not now. Any weakness just continues to be (in my opinion) a buying opportunity.

What Happened this Week

The Federal Open Market Committee (FOMC) cut interest rates by another 1/4% at 2:00pm on Wednesday. The market was expecting it and the cut had already been priced in. Any other action would have been a shocker. With stocks essentially at all-time highs, this continues to be reminiscent of 1995 when the Fed came from an overly restrictive monetary policy in 1994 to realizing they screwed up and quickly played catch up. Stocks had long understood and priced this in with 1995 being one of the all-time great investing years in modern history.

Right after the Fed announced their decision, all eyes were on the statement for clues of future interest rate cuts or signs that the Fed may be close to being done. Given the data and stock market behavior over the past 6 weeks, I was not surprised that Jay Powell and company offered some indications that a pause in the rate cutting cycle may be in order into 2020.

It’s certainly no secret that the President isn’t the biggest fan of Jay Powell, even though Donald Trump appointed Powell as Fed chief. Trump has been as misguided as Powell when it comes to interest rates. The President has been publicly trying to shame the Fed into copying the failing and disastrous European model for negative interest rates, something I truly hope never, ever happens in the U.S. Low or negative interest rates are certainly not an economic panacea.

On the other hand, whether intentional or by accident, President Trump has been ingenious in creating a natural scapegoat for any potential economic weakness before the election. If the economy strengthens over the coming quarters, Trump will certainly take credit for it, in spite of his perception that the Fed had been working against him. If the economy weakens from here, the President will obviously blame Powell & Company as Trump has been publicly campaigning for more.

The general market whiplash on Fed Day will most likely have no effect whatsoever on anything important. To quote Shakespeare (from MacBeth) It is…’full of sound and fury, signifying nothing.’

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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