The equity market strained its eyes last week with all of the intense Fed watching. The gains posted early in the week began to crack on Wednesday when Federal Reserve Chair Janet Yellen hinted at a “live possibility” of a rate hike following its mid-December meeting. The market’s enthusiasm was also held in check on Friday following the promising jobs report, which many believe will make a rate liftoff in December a slam dunk. Despite this, stocks still managed to post gains for the week. The S&P 500 index rose 1 percent, the Dow Jones Industrial Average climbed 1.4 percent, and the NASDAQ composite jumped 1.9 percent.
Impressive Jobs Report Paints Fed Into Corner
No matter how you slice it, the October jobs report was strong. Non-farm payrolls added 271,000 jobs. This not only blew away the consensus estimates but pushed the monthly average above 206,000 new jobs for 2015. This is the second highest figure since 1999. On top of this, the unemployment rate dipped to 5 percent, its lowest level since 2008. Even the broader measure of underemployed workers, which includes part-time employees who are seeking full-time gigs, fell below 10 percent for the first time in seven years. The manufacturing sector displayed some weakness, but almost every other industry showed strength. In fact, the dispersion index – a measure of the breadth of job growth – expanded to 61.8 percent from below 54 percent last month. Most importantly, wages are finally starting to rise. Earnings jumped 2.5 percent on a year-over-year basis. This is the fastest rate in six years and shows steady improvement each month for the past three. The impressive jobs report has pushed the odds of a December rate hike by the Federal Reserve to 70 percent. This was below 60 percent the day before the jobs report release and just 38 percent one month ago.
The Dollar Bulks Up Ahead of Rate Rise
The increased prospect of a Federal Reserve liftoff in December has pushed the value of the U.S. dollar to its highest level in almost 13 years. The Wall Street Journal Dollar Index, which values the dollar against a basket of 16 currencies, jumped 1.2 percent on Friday following the positive jobs report. This is its highest level since December 2002. Individually, emerging market currencies suffered the most. The Mexican peso fell 1.2 percent, the Russian ruble declined 0.9 percent, and the South African rand collapsed 2 percent. A stronger dollar tends to hurt commodity-based emerging economies by making exports more expensive. Additionally, emerging countries tend to issue a significant chunk of debt denominated in dollars, and a rising greenback makes it harder to repay.
The Bull Bounces Back in China
Late last week China officially entered a bull market when the Shanghai Composite Index closed more than 20 percent above the lows posted on August 26. Investors have returned to the market after the rout experienced in late August. Margin loans are increasing and daily trading volume is rebounding as efforts by the Chinese government to stabilize the markets appeared to have worked, for now. The return of the market has prompted the government to lift its temporary ban on initial public offerings. The China Securities Regulatory Commission recently approved 10 companies for listing, and shares are expected to begin trading within a few weeks.
Fun Story of the Week
The falling leaves and shorter days are sure signs the autumnal equinox has passed. More commonly known as the first full day of fall, we are more than a month beyond this annual milestone. However, last week marked a much more rare event: the “sports equinox”. This rare occasion occurs when the stars align for sports fans and all four major U.S. leagues host at least one game on the same day. Sunday, November 1 included game 5 of the World Series, 12 NFL games, seven NBA contests, and five NHL matchups. There have only been fifteen such occurrences in history, and this year marks the first “sports equinox” since 2010.