From Labor Day to Veteran’s Day, What’s Changed?
A lot has changed since September 2. The days are shorter, the weather cooler, and the yield curve is steeper. It was on the Tuesday after Labor Day that the benchmark 10-year Treasury note traded for 1.46%. As of Friday October 8, the yield on the 10-year Treasury was 1.94%. Besides moving the clocks back an hour, what has changed since early September?
- The Federal Open Market Committee (FOMC) has cut rates twice. The Fed Funds Rate, the benchmark off which banks lend to each other in overnight operations, is down 75 basis points this year to a range of 1.50 – 1.75%.
- Fears of an immediate recession have faded, as have trade hostilities. Strategist Nancy Lazar summed it up nicely with her opinion: No recession is coming. The global slowdown is over. The increasing labor-force participation is expanding the economy’s supply side. Most importantly to markets, in our opinion, trade headwinds are abating just as the lagged effect of monetary easing is stimulating the economy.
- Jobs numbers have remained strong enough to keep unemployment at all-time historical lows, despite the positive uptick in labor participation. Payroll growth has averaged 176,000 for the past three months.
- Third quarter earnings season came in better than feared. According to Factset, as of Friday 89% of the companies in the S&P 500 have reported results. 75% have reported EPS above estimates (3.8% on average), which is above the five-year average. Revenues growth has been 3.2% year-over-year, while EPS has declined 2.4%.
The FOMC has taken action to normalize the yield curve. Phase 1 of a trade deal is expected to be signed within the month. There is an expectation that the global slowdown has bottomed, to which U.S. corporate profits appear quite resilient. It is no wonder that the market is hitting all-time highs. We remain optimistic, but waning investor fears is not a reason to become more enthusiastic. Risks rise with higher prices is a truth investors often fail to grasp. We will continue to act with prudence as we manage our client’s portfolios.
On this Veteran’s Day, commemorating 101 years since the end of WWI, we want to thank all our veterans.
They Did Their Share
On Veteran’s Day we honor
Soldiers who protect our nation.
For their service as our warriors,
They deserve our admiration.
Some of them were drafted;
Some were volunteers;
For some it was just yesterday;
For some it’s been many years;
In the jungle or the desert,
On land or on the sea,
They did whatever was assigned
To produce a victory.
Some came back; some didn’t.
They defended us everywhere.
Some saw combat; some rode a desk;
All of them did their share.
No matter what the duty,
For low pay and little glory,
These soldiers gave up normal lives,
For duties mundane and gory.
Let every veteran be honored;
Don’t let politics get in the way.
Without them, freedom would have died;
What they did, we can’t repay.
We owe so much to them,
Who kept us safe from terror,
So when we see a uniform,
Let’s say “thank you” to every wearer.
By Joanna Fuchs