How will September’s jobs data be interpreted?  Until this week, the data was consistently surprising on the upside suggesting an economy expanding around a 2.5% to 2.75% pace.  However earlier in the week both the ISM Manufacturing Index and the ISM Non-manufacturing Index disappointed by a wide margin causing the recessionary narrative to go ballistic.

Treasuries rallied and equities sank.  The question at hand is whether or not the markets have over reacted?

All major indices have violated their 50 and 100 day moving averages and are now around their 200 day moving averages.  Speaking of which the 200 day moving average is flat for 14 months.  In other words it is around the same level today as it was on August 1, 2018.

This is an abnormality.

There are several interpretations of the 14 month flat 200 day moving average lines.  Some are suggesting the markets are very efficient trading in a tight range but with intense volatility beneath surface.

Others are suggesting a major breakdown is about to occur.  While others are suggesting the inverse.  As with everything, there are numerous articles, reports, etc., to confirm one’s preconceived confirmation bias.

I will continue to believe that money will ultimately gravitate to those sectors that offer the greatest potential gain with the least amount of risk, companies whose profitability is accelerating at pace greater than the market is suggesting and whose shares are mispriced.

Earnings season is about to commence and Bloomberg writes that earnings growth for the value shares will again outpace earnings gains for growth shares.  Value shares are trading at the sharpest discount to growth since at least 2000.

What are the odds the moving average lines will remain flat for the foreseeable future but a viscous rotation amongst sectors will continue?  This is the scenario expressed by the late Jack Bogle who commented the markets may remain flat for the next 10 years.

Economists are expecting a 146k and 130k increase in non-farm and private sector payrolls, respectively, a 3.7% unemployment rate, a 0.3% increase in average hourly earnings, a 34.4 hour work week and a 63.2% labor participation rate.

To write the obvious the markets will take its que from the data.  Bloomberg writes globally over $1 trillion has evaporated since last week, partially the result of the hyper recessionary narrative.

Speaking of which, yesterday equities recovered from over a 1% decline to close about 1% higher as some believe the data increases the odds of another interest rate cut by year end.

Last night the foreign markets were mixed.  London was up 0.40%,  Paris up 0.14% and Frankfurt down 0.06%.  China was down 1.06%, Japan up 0.32%  and Hang Sang down 1.11%.

The Dow should open nominally lower but this could change radically given the significance of the 8:30 data.  The 10-year is unchanged at 1.53%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.