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Market Brief – Friday 10/4/19

September Nonfarm payrolls missed expectations of a +145k print by coming in at +136k. However, August was revised higher by +38k which broke the recent five-month streak of negative payroll revisions and July was revised higher by +7k. Private payrolls only increased by +119k which is the lowest amount since 2012.

Stock prices surged following the payroll report and the S&P 500 closed an overnight gap from a couple of days ago along with reconfirming its overhead resistance level. Trading volumes were rather light, suggesting that sellers are letting buyers run up stock prices since the Nonfarm payroll report is a lagging indicator as today’s numbers are consistent with an economy entering a recession when looking back over the past ten economic expansions. The confirmation was in industrial and transportation jobs, which both shed -4k jobs last month.

Average hourly earnings continued to slide as they fell to +2.9% on a year-over-year basis against expectations of a +3.2% print. Weekly earnings are down to +2.6% on a year-over-year basis from +2.9%. Average weekly hours were unchanged at 34.4. Treasury yields fell following the report as the bond market sees the economy entering a recession in the months to come.

Preliminary September Class 8 heavy-duty truck orders are down -71% in September following a -79% drop in August. The drop in orders isn’t raising any red flags yet since there still is a backlog of new orders. According to Broughton Captial, in the first half of 2019 640 trucking companies failed whereas only 310 trucking companies failed in 2018.

While the dollar liquidity issue has seemed to go away, the New York Fed announced on Friday will offer term repo operations ranging from six to fifteen-night loans through November 12 and will maintain overnight repo operations of at least $75 billion through November 4. Over $100 billion of 14-day repo operations come due next week at the same time the U.S. Treasury is scheduled to auction long-maturity debt to fund the government.

Stocks rose today with a surge of buying in the final hour of trading after several Fed speakers and White House officials stated there was no recession in sight. The S&P 500 busted through its overhead resistance level and erased all its losses for October.

The bond market didn’t see today’s payroll report with the same optimism that stock investors did as yields fell most of the day. Thirty-year Treasury yields saw a strong move down as large commercial banks added $9 billion of Mortgage-Backed Securities to their holdings, which causes yields to fall. The bond market continues to see a recession on the horizon, while the stock market doesn’t.