ND&S Weekly Commentary 1/7/19 – Strong Jobs Report Eases Growth Concerns

January 7, 2019

Equity markets continued their volatile ways last week. On Thursday, the DJIA fell over 600 points on news from Apple that 4th quarter iPhone sales in China were below estimates. This marked the first negative sales revision for Apple in 15 years. Then on Friday, the DJIA soared over 700 points, recovering all of the previous day’s decline, as a blowout jobs report and comments from Fed Chairman Jerome Powell that the FOMC would be patient on future rate increases. Friday’s advance pushed equities into positive territory for the week with the DJIA, S&P 500 and NASDAQ up 1.7%, 1.9% and 2.8%, respectively. International equities were also positive with the MSCI EAFE increasing 1.4% and the MSCI EM advancing a modest 0.3% on the week.

The jobs report on Friday came in well above expectations with an increase of 312,000 jobs in December, with an additional 58,000 from upward revisions to prior months. Notably, the unemployment rate did rise to 3.9%, pushed up by over 400,000 workers entering the labor force last month. This moved the labor participation rate up to 63.1% from 62.9%. Perhaps, the best part of Friday’s report was that wages showed a healthy gain of 0.4% in December and are now up 3.2% from a year ago. Gains in payrolls, more workers joining the labor force and higher real wages should support additional consumer spending and bolster somewhat slower but stable economic growth in 2019.

Interest rates fell last week as the rate on the 10 year U.S. Treasury dropped from 2.72% to 2.67% further flattening the yield curve. This week, look for economic reports on ISM non-mfg. PMI, inflation and the release of FOMC minutes from last month. In addition, US-China trade talks would resume this week at the vice-ministerial level.

“Without investment there will not be growth, and without growth there will not be employment.” -Muhtar Kent