A relatively uneventful week was culminated with the release of the September unemployment report. The three adjectives that I have heard the most to describe the September employment report were "weak," "disappointing" and "lackluster." In my opinion, the employment numbers accurately describe economic reality and, as a result, increase uncertainty for market direction going forward. The change in non-farm payrolls was +142,000 versus an expectation of 201,000. In addition, the July and August reports were revised downward by 59,000. This revision was a bigger surprise, given that market consensus was for the overall change to be positive. The labor force participation rate also declined to its lowest levels since the 1970s. If that wasn’t enough weak news, average hourly earnings remained unchanged month over month. The only bright spot was that the unemployment rate remained at 5.1%.
I have learned over the years to not overreact to one piece of unexpected economic data, and I don’t plan on changing that over these numbers; however, this data should be looked at seriously in conjunction with upcoming economic reports and third quarter earnings to determine the longer-term implication for markets. Remember that offsetting this report are unemployment claims remaining below 300,000 (which should indicate solid job growth) and the ADP report on employment released on Wednesday last week increased by 200,000.
Stock prices and bond yields both fell on the employment news; however, stocks reversed earlier losses and bond yields followed stocks higher as the trading session went on. I expect the stock and bond market to remain choppy in a relatively tight range over the next several weeks. I continue to prefer selling rallies in both stocks and bonds in the near term. We will be updating our forecast for the markets in the next few days, so stay tuned for our quarterly review and updated forecasts.
This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client. Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.