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“Being an intellectual creates a lot of questions and no answers.” – Janis Joplin

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Call it the calm before the jobs storm, but equity futures have drifted into positive territory as we approach the September non-farm payrolls report. A tentative agreement on the port strike has also helped sentiment.  In Asia, Chinese markets remain closed for the National Holiday, but the Hang Seng was open, and it rallied another 2.8% taking its weekly gain to 10.2%. Hong Kong’s Manufacturing PMI for September ticked up to 50.0% from 49.4 in August, so that helped investor sentiment heading into the weekend. The Nikkei gained a more modest 0.2% in Japan and finished the week down 3%. India finished the day down 1.0% as the September Services PMI fell more than expected to 57.7 from 60.9 in August.

In Europe this morning, the tone is mostly positive as markets look to end a negative week (STOXX 600 down over 2%) on a positive note. While French Industrial Production came in higher than expected (1.4% vs 0.3% forecast), Retail Sales in Italy and Spanish Industrial Production unexpectedly declined.

For a Federal Reserve that is more concerned about the job market than inflation, it feels as though this morning’s employment report hasn’t had quite the buildup of other reports in the past. Be that as it may, history would suggest a weak report. As shown in the chart below, since 1998, the September change in non-farm payrolls (reported in early October) has consistently come in weaker than expected. Of the 26 prior reports, the initial headline reading has missed expectations nearly 70% of the time, and the median spread relative to expectations has been a miss of 47K.

With economists expecting a headline reading of 150K, history would suggest a possibility of a sub-100K number. That would be just the second such reading since the start of 2021 and the last three months! So does that mean a weaker-than-expected print is in the bag?  Nothing is ever that easy, and while the September report has historically been weak, last year’s initially reported number was the biggest beat relative to expectations since at least 1998 (although it was ultimately revised down by 90K in the ensuing months).

It has been over two weeks since the Fed cut rates, so we wanted to step back and see how various asset classes and market sectors have performed.  Starting with asset classes, commodities have been the biggest winners with gold up over 4% and crude oil rallying 3.8%. After that, the Nasdaq, US Dollar Index, Bitcoin, and the S&P 500 have rallied between 1% and 2%.  Lastly, on the downside, US Treasuries and the Russell 2000 have declined.

At the sector level, given the surge in oil prices, the Energy sector has been the top-performing sector with a gain of over 6%.  Communication Services and Utilities have followed with a rally of over 3.5%. No matter what the environment has been this year, it seems there’s no stopping the Utilities sector.  On the downside, Consumer Staples, Health Care, and Real Estate have all declined over 2%  as interest rate-sensitive sectors (besides Utilities) have felt the pressure of rising rates.