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Sherry L. Watson, CPA, CFP®
Vice President and Trust Officer
The latest reading of job growth came in at 135,000 for the month of September, according to the ADP and Moody’s. While ahead of estimates, this number represents a substantial decline from last September’s 214,000. This could signal weakening demand for labor, but could also be solid evidence of the labor shortage in skilled workers that we have noted in the past few newsletters. In other words, there is substantial debate whether the lower hiring numbers are caused by caution among employers, or lack of people to hire. Nevertheless, this potentially signals that we are draw-ing closer to a downshift in economic growth in the US.
Potentially more significant, the ISM manufacturing index printed 47.8 for September, its lowest level since January 2016; any reading of less than 50 signals contracting business conditions in the manufacturing space. Finally, we begin October with a World Trade Organization (WTO) ruling that opens the door for the US to implement more than $7.5 billion in tariffs on EU goods.
Estimates for the Fed Funds overnight rate include a high probability of that benchmark being low-er by 50 to 75 basis points within a year. This is likely to help the economy to a softer landing in the event of recession, or even more likely to help the economy avoid that altogether and merely experience a period of slower growth. GDP growth is still forecasted to end the year at 2.3%, which is down from last year’s 2.9, but still growth.
The VIX index, which measures volatility expectations in the equities market, has risen to 21. This indicates such expectations have risen substantially since mid-September. The S&P 500 index is at 2881.56 as of this writing, or up 14.9% since the beginning of 2019. Given current conditions, we do not see prices moving up beyond their recent high of 3027.98, before year-end. It appears that we could see another turbulent 4th quarter this year, but we would view this a buying opportunity.
Rates are low, with the 10-year Treasury back to yielding 1.59%. Given the expected moves by the Federal Reserve and “risk off” mood that seems to be developing in the markets, we anticipate rates to go lower over the coming quarter.
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