Following some very tough stock market conditions in August and September, investors were hoping for some positive news that would drive stocks higher by the end of this past week. Then came the ugly-looking jobs report. It showed just 142,000 new jobs were created in September, which was below estimates of 200,000 and only slightly higher than August’s 136,000. This report was a big disappointment, and the stock market began Friday sharply lower. It was looking as though Friday would end not only lower for the day, but for the week as well. In other words, investors were thinking that October might be shaping up to be a tough month for stocks.
But a funny thing happened on the way to Friday’s close. The stock market perked up and soared straight into the close, leaving the major indices with daily gains of 1.2% for the Dow, 1.7% for the Nasdaq and 1.4% for the S&P 500. That was enough of a daily gain to leave all three of the major indices up for the week, with the Dow and the S&P 500 up 1.0% and the Nasdaq up by about 0.5%. That was not all that bad of a performance for a week that closed out with a very disappointing jobs report.
We also saw some worrisome news on Thursday, as the Institute of Supply Management (ISM) reading for September of 50.2 versus the expected 50.6, and down from August’s 51.1. Keep in mind that an ISM below 50.0 means that the economy is in contraction mode, so just like the employment report, this was not exactly the vibrant news that investors were hoping to see. These two reports suggested a slowdown that could actually be leading the economy into recession mode, which helped explain Friday’s early selloff.
The market psyche changed as the day wore on, though, and the conventional wisdom was that maybe the “bad news” was actually “good news.” Maybe this round of negative news will make it impossible for the Fed to even consider a rate hike or two well into 2016. We saw how edgy and nervous investors became in August and September, and a lot of that fear was the result of rate hike concerns. The Fed came very close to raising rates at its September meeting, but once it did not raise rates. All of the worries were just rolled over into October.
But these first two days of October have made it clear that the economy might not be anywhere near as strong as many economists and market sages had thought. Throw in the escalating violence and military actions in Syria, and you can see why the stock market might be spooked. Syria is a reminder of how global shocks can appear in a moment’s notice, and the thought was that if “global shocks” are reappearing, then the Fed would become even MORE reluctant to raise rates before 2016.
So Friday’s rally seemed a whole lot more the product of the chance of “no rate hikes” than it was the fear of a global or U.S. economic slowdown. Investors could easily change gears and go back to that whole “Global Growth” theme, and we could easily see that theme reassert its ugly head very quickly. But that was not a worry for the stock market on Friday afternoon, and most bulls were more than happy to head into the first weekend of October with a win for Friday, as well as a respectable win for the week.
It is October, and earnings season is about to kick off in earnest. The “Global Growth” question will be answered quickly by earnings reports from the big multinationals, which should clarify whether we are or are not seeing a big slowdown in global growth. There was a big “flight to safety” of capital this week, as the yield on the 10-year U.S. Treasury dipped back below 2.00%, so that showed that even with Friday’s stock market strength, there was capital seeking safety for most of the week. This is a development investors will be watching closely next week.
That said, the Gorilla wishes each and all a relaxing weekend. October is finally here, and we all know that Octobers can be, well, Octobers! That is why it is a plus for investors and market watchers to have a calm weekend to get rested and ready for the rest of the month (as well as the rest of the year). The leaves are falling everywhere, and it is a beautiful time of year, so enjoy. Again, have a great weekend, and we will be back in action on Monday!
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