September 11, 2019

The HCM BuyLine® is comfortably positive, and we see a rotation out of bonds and back into equities. However, a short-term pause is likely, but the longer-term cycle backdrop remains bullish through Q4 well into 2020. After a short breakout above the August trading range, the S&P is expected to see another pause/pullback point between 3000-3027 resistance coinciding with the underside of the 2019 uptrend. A pullback would not be a surprise here. Our expectation is it would be a shallow one (~3%) given intermediate-term indicators are showing evidence of bottoming within the context of an ongoing bullish cycle backdrop. In short, the current tactical and long-term backdrop continues to track the overall profile that developed through 2016 with an upside acceleration expected to take hold in early Q4.

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Although the headline showed that slower economic growth is beginning to dent job growth, there was a wide gap between the establishment and household surveys and other details. Non-farm payrolls increased 130,000 in August, below the consensus of 150,000 and our estimate of 148,000. The composition was worse than we had anticipated, as there were more government jobs and fewer private-sector jobs. Additionally, the prior two months were revised down by a total of 20,000 jobs. But the average workweek rebounded, and average hourly earnings (AHE) were stronger than expected. Moreover, the household survey showed impressive strength. This report cements a 25 bp Fed rate cut in less than two weeks, as the Fed cautiously provides additional accommodation to sustain the expansion.

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  • Although the unemployment rate remained at 3.7%, in line with expectations, some details of the household survey were downright strong.
  • The number of employed surged 590,000, the most since February 2018, while unemployed fell 19,000.
  • All of the increase was in wage and salary workers.
  • So, when you adjust household employment to the establishment survey concept, jobs skyrocketed by over one million, the most since February 2002!
  • Over the past 12 months, the adjusted household survey has averaged 50,000 more jobs per month than the establishment survey.

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