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STA Weekly Report – U.S. Job Market Remains Strong with Firming Wage Growth

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U.S. Job Market Remains Strong with Firming Wage Growth
Weekly Technical Comment
How to Prepare Yourself for the Next Recession
401k Plan Manager


America’s job market is hot. Job openings in July rose to a fresh record. According to the Job Openings and Labor Turnover Survey (JOLTS), the number of positions waiting to be filled increased by 117,000 to a seasonally adjusted 6.94 million from an upwardly revised 6.82 million in June, exceeding economists’ expectation of 6.68 million by a large margin. This is the highest level on record back to 2000.

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Source: Bureau of Labor Statistics, The Wall Street Journal

The number of Americans filing for unemployment benefits slipped 1,000 to a seasonally adjusted 204,000 for the week ended Sept. 8, the lowest level in nearly 49 years.

Source: Department of Labor, FRED.

As a result, job openings continue outnumbering unemployed Americans, a phenomenon that has never occurred before March 2018. Since then, the number of available jobs has exceeded the number of job seekers every single month.

In the National Federation of Independent Business (NFIB) August report, a record 25 percent of small business owners cited difficulty finding qualified workers as their single most important problem, topping taxes, weak sales, and the cost of regulation. Of business owners, 38 percent reported that they could not fill their job openings in the current period. A seasonally-adjusted 26 percent of those business owners reported planning to create new jobs, which also marks a record high for the survey.

All this data suggest that we continue to have an extremely healthy labor market in the United States. Further, with the U.S. economy at full employment and more business owners planning to raise worker compensation in near future, we expect wage pressures to continue building. In August, average hourly earnings grew 2.9%, the fastest monthly pace since the financial crisis.

A strong labor market and firming inflation are also likely to keep the Federal Reserve on their current interest rate glide path. We expect 2 more rate hikes in 2018, in line with market consensus.

A strong labor market is important for investors not just because it highlights a robust economic backdrop. It also supports consumer confidence and spending, which, in turn, support economic growth and most importantly, corporate earnings. On the other hand, the unemployment rate is one of the most popular lagging indicators, but only confirms the existence of an economic trend. However, it tends to trail the price movements of underlying assets. Historically and counterintuitively, the stock market has typically delivered its strongest performance when the unemployment rate was elevated. When the unemployment rate has fallen below 4% (as it is now), stock returns tends to be more modest.

In conclusion, we are encouraged by continuing economic momentum but believe investors should remain cautious of any changing tides during the late stages of the economic cycle as market sentiment can shift quickly.


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The Dow Continues to Lead – Boeing and Caterpillar Gain

Chart 1 shows the Dow Industrials trading at the highest level in nearly eight-months and approaching a test of its January high. Chart 2 shows Boeing (BA) rising above its July peak to turn its trend higher. Because of its high price, Boeing has the biggest impact on the direction of the Dow. Chart 3 shows Caterpillar (CAT) rising above its 200-day average (red line) for the first time in three months. Three other Dow leaders today are Intel, Nike, and United Technologies. The last two are trading at record highs.

NASDAQ 100 Holds 50-Day Line

The Nasdaq market is having a bounce-back day as well. Chart 4 shows the Invesco Nasdaq 100 (QQQ) bouncing off its 50-day average today to keep its uptrend intact. The Nasdaq is being supported by rising biotech and technology stocks. Some of today’s biggest percentage gainers include Micron Technology, Netflix, Broadcom, and Qualcomm. Some bigger stocks like Amazon, Apple, and Microsoft are also gaining ground. Semiconductors are also having a strong day. Chart 5 shows the PHLX Semiconductor iShares (SOXX) holding above its 50-day average after surviving a test of its 200-day line last week. That’s an encouraging sign for semiconductors and the tech sector in general. Most stock sectors are rising recently led by cyclicals, technology, industrials, and energy.

Ten-Year Treasury Yield Reached Four-Month High

Chart 6 shows the 10-Year Treasury Yield ($TNX) rising above its twin summer peaks near 3.00% and reaching the highest level in four months. That upside move breaks the TNX out of the three-month sideways pattern that it had been trading in; and may be setting the stage for a retest of its May peak. That would be a very important test. The next chart shows why. The monthly bars in Chart 7 show that the May 2018 peak in the 10-year yield represented a retest of its late 2013 peak around the same level. From a long-term perspective, that’s a very important test. Because a decisive close above this May’s peak would put the TNX at the highest level since 2011. It would also constitute a major bullish breakout on its long-term chart which would signal higher bond yields. The immediate impact of higher bond yields is falling bond prices.

Bond Prices Are Dropping

Bond prices always drop when yields are rising. Chart 8 shows the 20+Year Treasury Bond iShares (TLT) falling below its late-July bottom to the lowest level in four months. Chart 9 shows the 7-10 Year Treasury Bond iShares (IEF) nearing a test of its summer low. Both bond ETFs have been forming major tops for some time. The recent upside breakout in bond yields may accelerate that topping process in bond prices. So far, the upside breakout in bond yields is having a minimal effect on stock prices. Financial stocks are getting a minor boost, while dividend paying stocks like staples, utilities, and REITs are modestly lower. Stocks in general are having a strong day.

Weekly Snapshot of Global Asset Class Performance

If you have any questions, please feel free to email me at


STA Investment Committee

Luke Patterson, CEO & Chief Investment Officer
Mike Smith, President
 Andrei Costas, Senior Investment Analyst (Equity Strategies)
 Nan Lu, Senior Investment Analyst (Fixed Income Strategies)

How to Prepare Yourself for the Next Recession
Scott Bishop

This month marks the 10th anniversary of Lehman Brothers’ bankruptcy, a collapse synonymous with the 2008 financial crisis. The U.S. emerged from the Great Recession in 2009, entering what may be one of the country’s longest periods of economic expansion.

But if all good things must end, it’s natural to wonder when to expect the next downturn and how to prepare. There’s chatter that a recession is on the horizon, and while no one knows exactly when, some economists think the U.S. economy could enter a downturn in 2020. The Federal Reserve also signals that gross domestic product — the value of all goods and services produced across the economy — will slump in 2020. Echoing fellow economists, Tendayi Kapfidze, chief economist at LendingTree, MagnifyMoney’s parent company, said he expected the economy to slow the second half of 2019.

“This does not mean it will go into recession though,” he noted, “although the risks are higher when underlying growth is slower.”

Read Full Article Here



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