The Week In Review

10/7/16

The stock market finished a range bound week on a relatively flat note as investors pored over the Employment Situation Report for September. Interest rate volatility remained at the forefront as participants assessed an evolving fed funds rate hike picture and further Brexit shocks from across the pond. The Nasdaq Composite (-0.3%) settled in-line with the S&P 500 (-0.3%) and slightly behind the Dow Jones Industrial Average (-0.2%).

Long-term interest rates struggled for direction as a mixed reading from the September employment report shifted the U.S. rate hike outlook. Headline nonfarm payrolls increased by 156,000 (Briefing.com consensus 176k) while August's reading was revised to 167,000 from 151,000. Furthermore, average hourly earnings increased by 0.2% (Briefing.com consensus +0.2%), which could pave the way to an increase in inflation expectations. Average hourly earnings growth also registered the largest year-over-year increase in several years.

The fed funds futures market responded by discounting the odds of a November rate hike and improving the outlook for a December hike. The implied probability of an interest rate hike at the December meeting increased to 69.5% from 63.4% in the prior session. Rate hike odds also improved as participants assessed remarks from Cleveland Fed President Mester (an FOMC voter) and Fed Vice Chair Fischer. President Mester stated that the employment report appeared consistent with her expectations while Mr. Fischer called the reading a "Goldilocks number."

The benchmark index finished in the middle of its trading range, testing technical resistance near the 2155 price level. Nine sectors ended in the red with materials (-1.8%), industrials (-1.2%), and consumer discretionary (-0.4%) acting as notable laggards. On the flipside, financials (+0.1%) and health care (+0.1%) settled in positive territory.

In the heavyweight industrials sector (-1.2%), Honeywell (HON 106.94, -8.67) tumbled 7.5% after projections for its third and fourth quarter fell short of analyst estimates. Meanwhile, Dow component United Technologies (UTX 100.58, -1.50) finished at the bottom of the price-weighted average as it moved lower in sympathy with the name. The broader sector declined 1.4% this week, which compares to a loss of 0.7% in the benchmark index.

The Dow Jones Transportation Average (-0.9%) displayed relative weakness as airlines trimmed their weekly advance. The U.S. Global Jets ETF (JETS 23.09, -0.35) declined by 1.5%, erasing its weekly gain.

In the consumer discretionary space (-0.4%), retail names outperformed, evidenced by the 0.1% loss in the SPDR S&P Retail ETF (XRT 43.85, -0.03). In the ETF, Gap (GPS 26.25, +3.47) displayed relative strength after comparable store sales for September came in better than feared. The stock was also upgraded to "Hold" from "Sell" at Deutsche Bank. The discretionary space finished the week lower by 0.4%.

Property and casualty insurers led in the financial sector (+0.1%) as Dow component Travelers (TRV 114.53, +1.35) jumped 1.2%. The sub-group rebounded after Hurricane Matthew avoided a direct hit to Florida's east coast last evening. Banking names also continued their recent winning streak as the SPDR S&P Bank ETF (KBE 34.22, +0.03) extended its weekly gain to 2.1%. The broader sector advanced 1.5% this week.

Treasuries ended on a mostly higher note as the long end of the curve underperformed. The yield on the 2-yr note slipped two basis points (0.83%) while the yield on the 10-yr note declined one basis point (1.73%). The spread between the 2-yr and 10-yr note has expanded to 90 basis points from 83 basis points last Friday.

Today's participation was above the recent average as more than 929 million shares changed hands at the NYSE floor.

Today's economic data included the Employment Situation Report for September, the Wholesale Inventory Report for August, and Consumer Credit for August:

Nonfarm payrolls increased by 156,000 (Briefing.com consensus 176,000). Job gains have averaged 178,000 per month so far this year versus an average of 229,000 per month in 2015.

August nonfarm payrolls revised to 167,000 from 151,000

July nonfarm payrolls revised to 252,000 from 275,000

Private sector payrolls increased by 167,000 (Briefing.com consensus 171,000)

August private sector payrolls revised to 144,000 from 126,000

July private sector payrolls revised to 221,000 from 225,000

Unemployment rate was 5.0% (Briefing.com consensus 4.9%) versus 4.9% in August

Persons unemployed for 27 weeks or more accounted for 24.9% of the unemployed versus 26.1% in August

September average hourly earnings were up 0.2% (Briefing.com consensus +0.2%) after being up 0.1% in August

Over the last 12 months, average hourly earnings have risen 2.6% versus 2.4% for the 12-month period ending in August

The average workweek was up 0.1 to 34.4 hours (Briefing.com consensus 34.4)

September manufacturing workweek was up 0.1 hour to 40.7 hours

Factory overtime was unchanged at 3.3 hours

The labor force participation rate was 62.9% versus 62.8% in August

Wholesale inventories declined 0.2% month-over-month in August (Briefing.com consensus -0.1%) following a downwardly revised 0.1% decline (from 0.0%) in June.

Wholesale sales were up 0.7% on the heels of a downwardly revised 0.6% decline (from -0.4%) in July.

Total outstanding consumer credit increased by $25.8 billion in August (Briefing.com consensus $18.0 billion) after increasing an upwardly revised $17.8 billion (from $17.7 billion) in July.

For more on these economic releases, be sure to visit Briefing.com's Economic Calendar page.

There is no economic data of note scheduled to be released on Monday.