We're in the middle of an interesting moment for the markets, where short-term volatility and uncertainty might lead you to believe that the economy is faltering. After all, the major stock indexes lost ground this week, with the S&P 500 losing 1.94%, the Dow dropping 1.50%, the NASDAQ dipping 2.77%, and the MSCI EAFE declining 1.59%.[1] On top of these losses, the S&P 500 posted its longest losing streak since 1980.[2]

Of course, we never like to see the markets go down. However, we believe that when you look beneath the surface, the economy is still doing far better than what this week's performance implies. Behind the losses and ongoing election exhaustion, we see a number of strong indicators that the economy is growing. This week, we learned that the trade deficit shrank[3], the service sector grew for the 81st consecutive month[4], and manufacturing continued its steady growth.[5]  

On Friday, November 4, we also got to see new data on jobs and payrolls - the last significant economic report before Election Day.

What did the jobs report show us?

  • Unemployment Rate Dropped. The unemployment rate hit 4.9% - only 0.1% above the Federal Reserve'starget unemployment rate.[6]
  • Economy Added 161,000 Jobs.  While this job creation rate was below economists' predictions, we don't think it is cause for concern. The growth was matched by revised August and September reports that added another 44,000 jobs.[7]
  • Hourly Earnings Increased. Earnings increased by 0.4%, pushing them 2.8% higher than this time last year. We haven't seen an earnings increase this large since 2009.[8]
  • People Left Their Jobs at Higher Rates. Last month showed the highest number of people who voluntarily left their jobs since 2007.This statistic matters because it can show that people are more confident they'll be able to find new jobs.[9]

Our Takeaway
For years, this plow horse economy has been adding new jobs at a slow and steady pace. Now that we've almost reached the benchmark unemployment rate, people are finally starting to see their wages increase and new opportunities arise. Typically, better jobs mean more disposable income, which equals increased consumer spending - and economic growth.

The rest of 2016 might not be a smooth ride, as the election and potential interest rate increase remain on investors' minds. We hope you find comfort knowing that beneath this short-term volatility, we see growing economic strength.

ECONOMIC CALENDAR:

  • Monday: Gallup U.S. Consumer Spending Measure, Consumer Credit
  • Tuesday: U.S. Presidential Election
  • Wednesday: Wholesale Trade, EIA Petroleum Status Report
  • Thursday: Treasury Budget
  • Friday: Banks Closed but Markets Open, Consumer Sentiment

 

 

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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
 
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
 
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The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
 
The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies.  Bonds are equally weighted by maturity cell, industry sector, and the overall index.
 
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[1] http://finance.yahoo.com/quote/%5EGSPC/history?period1=1477627200&period2=1478232000&interval=1d&filter=history&frequency=1d

http://finance.yahoo.com/quote/%5EDJI/history?period1=1477627200&period2=1478232000&interval=1d&filter=history&frequency=1d

http://finance.yahoo.com/quote/%5EIXIC/history?period1=1477627200&period2=1478232000&interval=1d&filter=history&frequency=1d

https://www.msci.com/end-of-day-data-search

[2]  http://www.bloomberg.com/news/articles/2016-11-03/japan-futures-tip-stock-losses-on-yen-bounce-pound-holds-gains

[3] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/the-trade-deficit-in-goods-and-services-came-in-at-36.4-billion-in-september

[4] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/3/the-ism-non-manufacturing-index-declined-to-54.8-in-october

[5]  http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/1/the-ism-manufacturing-index-rose-to-51.9-in-october

[6] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october

[7] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october

[8] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october

[9] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october