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Market Review October 2019

  • Robert Santarpia

Another month, another mixed bag of market reports and analysis. The GM strike made waves in the labor market, and Hong Kong’s political unrest proves to be just as disruptive to the region’s economy. For more on that, as well as a major tech acquisition and Impeachment talk, let’s get into the October market review, starting first with the Jobs Report.

Jobs Numbers Up Above Predictions

The US economy added 128,000 jobs in the month of October. After some concerns regarding auto strikes and global unrest, the numbers came as a welcome surprise to many who had assumed jobs might just be breaking the 100,000 mark this month. The unemployment rate rose slightly to 3.6%, and 36,000 manufacturing jobs were lost primarily in response to the GM strike.

It’s really another month of mixed takeaways. Despite a slight increase from 3.5% to 3.6% in unemployment, the percentage is still an all-time low. Likewise, jobs continue to grow above expectations, yet when compared to 2018, the difference comes out to nearly 56,000 less jobs this year to date.

In this graph from the Bureau of Labor Statistics, the job fluctuation is clear and worrisome. Nobody is crying recession quite yet, but everyone is on alert. The Stock Market didn’t really respond to the report, but is much likely more interested in some of the other major events occurring around the world at this time. Let’s talk about a few other major things taking place that are influencing the market.

Third Interest Rate Cut from Fed Comes with Warning

A third cut to interest rates by the Federal Reserve came with no signs that another cut would follow in the coming months, despite more signs of an economic slowdown. Another drop by 25 points puts rates in the target range of between 1.5% to 1.75%. The Federal Open Market Committee notes its vote on the cut is a direct response to the fact that investment reports “remain weak.”

The most interesting part of the cut, however, came in a redaction of a phrase used in the previous interest rate cut. Language expressing the Fed’s intentions to “act as appropriate to sustain the expansion” of the United States’ economic growth is nowhere to be found in the latest report. Instead, the passage changed to an intention to “continue to monitor the implications of incoming information for the economic outlook” of the country.

The minor alteration might not seem like much, but it’s another sign that the Trump Administration's pressure to continue cutting interest rates are not influencing the Fed’s decisions. Relatively low inflation and a pace of growth above expectations, yet still showing signs of slowing, make for an unclear path ahead for the Reserve. Global unrest certainly leaves nobody feeling more confident, but the China trade ordeal is progressing, if ever so slightly. The name of the game remains to be “wait and see” for all curious as to just how low the interest rates will go.

GM Strike Diminishes Job Growth

It’s estimated that some 46,000 GM workers participated in the strike which took place for more than six weeks. Bank of America economist Joseph Song says “that’s a one-for-one reduction in the level of payrolls. On top of that, there are secondary impacts in the GM supply chain, primarily upstream from them— a lot of auto parts manufacturers and other kinds of primary metals companies.” Song also says that without a GM strike taking place for much of October, it’s likely that the economy could have boasted some 15,000 more jobs for the month.

October was already expected to slow slightly as the economy starts to stagnate, but it’s clear that the GM strike impacted the jobs numbers further. While the jobs numbers weren’t as low as some analysts predicted, there is an impact on the overall jobs market when this many people strike. Another clear change in relation to the strike is the number of GM employees active in the demonstration. As seen above in a graphic showcasing statistics from the Bureau of Labor Statistics, more workers across all industries involved in strikes are participating than the beginning of the Obama presidency. It’s nowhere where it was in the early 20th century, but it is growing. High profile teachers’ strikes in Los Angeles and Chicago are also increasing the number of striking workers, as battles for better resources for inner-city students rage on.

Morgan Stanley Preps for Decade of Decline

Morgan Stanley is looking at the upcoming decade, and things are not looking too good. According to a piece from Bloomberg, market returns in the next 10 years, as per Morgan Stanley’s strategists, are looking to be quite unsatisfactory.

The concerning part of the returns predictions doesn’t stop with a low return on investments. On top of this, analysts “believe lower sovereign-bond yields will dampen the ability of fixed-income securities to offset large declines in equities.”

Hong Kong Economy Takes Hit from Protests

The month’s largest story in terms of geopolitical tensions still involves China, but the United States is largely out of the picture. Instead, unrest and activism in Hong Kong are pushing the territory into a major recession, according to Bloomberg. Following reports of the worst slump since 2009’s global economic crisis, the Hong Kong Monetary Authority (HKMA) slashed interest rates, noting that the effort is not expected to make much of a tangible difference. The interesting aspect, and somewhat optimistic side of the debacle, is that the Hong Kong dollar remains strong, as do the deposit level and exchange rate.

The damage isn’t minor, nor is the turmoil expected to be over quickly. Profits of the largest lender in Hong Kong, HSBC Holdings, are down 12%. The Hong Kong economy grew through April, but the rapid decline in everything from SME sentiment to retail sales and tourism are down to near record lows.

The damage is significant enough to lead the HKMA to make a formal assumption that the territory is “very likely to record a negative growth for 2019 as a whole.” Although the original catalyst for protests, a Chinese bill supporting extradition of Hong Kong residents to mainland China, is currently not under consideration, activists worry that when pressure from the people disappears, the bill will resurface.

Google Strikes in the Wearable Tech War with Fitbit Acquisition

Lastly, a big announcement on the first of the month made it official: Fitbit is now under the Alphabet umbrella. According to the Wall Street Journal, Fitbit itself will join under Google, and help bolster its Wear OS platform. Fitbit, in response to the merger, notes that data collected in its devices will not be used for Google Ads, citing an ongoing commitment to take the privacy of its customers seriously. With this move, Apple and Google once again posture to battle it out in yet another growing sector of technology.

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