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Stocks Higher Following Jobs Report

U.S. stocks are solidly higher, trimming a weekly drop on the heels of a mixed September nonfarm payroll report that preserved recently elevated Fed rate cut expectations. Job growth slowed but prior months were revised higher and the unemployment rate fell to a low not seen since December 1969, though wage growth was unexpectedly flat and y/y growth was slowest in over year. The data comes as recession concerns ramped-up this week as manufacturing and services sector reports came in well below expectations. Treasury yields are mixed, as are crude oil prices, while the U.S. dollar is dipping and gold is seeing a modest gain. In equity news, Costco posted mixed results and HP announced restructuring plans, including a workforce reduction of up to 9,000 jobs. Europe finished higher.

At 12:52 p.m. ET, the Dow Jones Industrial Average, the S&P 500 Index and the Nasdaq Composite are all rising 0.9%. WTI crude oil is down $0.14 to $52.31 per barrel and Brent crude oil is increasing $0.22 at $57.93 per barrel, and wholesale gasoline is unchanged at $1.56 per gallon. The Bloomberg gold spot price is ticking $1.97 higher to $1,507.16 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is 0.1% lower at 98.82.

Costco Wholesale Corporation (COST $291) reported fiscal Q4 earnings-per-share (EPS) of $2.47, including the negative impact of a pre-tax reserve of $0.22, versus the $2.54 FactSet estimate, as revenues rose 7.0% year-over-year (y/y) to $47.5 billion, compared to the expected $47.4 billion. Shares are higher.

HP Inc. (HPQ $17) issued fiscal year 2020 EPS guidance of between $2.22-2.32, compared to the expected $2.24, while announcing a restructuring plan that includes a planned reduction of its workforce by about 7,000-9,000 employees. The company also announced that for 2020 it has authorized an additional $5.0 billion in share repurchases and its plans to increase its quarterly dividend by 10.0%. Shares are falling.

September employment report mixed, trade deficit widens

Nonfarm payrolls (chart) grew by 136,000 jobs month-over-month (m/m) in September, compared to the Bloomberg forecast of a 145,000 increase. The rise of 130,000 seen in August was revised to a gain of 168,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 114,000, versus the forecast-ed gain of 130,000, after rising by 122,000 in August, revised from the 96,000 increase that was initially reported. The job growth was led by gains in health care, professional and business services, transportation and warehousing, and government—which included the hiring of temporary workers to prepare for the 2020 Census count—while retail trade employment declined and manufacturing jobs dipped.

The unemployment rate fell to 3.5% from August's 3.7% rate, where it was expect-ed to remain, while the broader underemployment rate, which includes part-time workers who would prefer full-time work and those not actively looking fell to a near 20-year low of 6.9%. Average hourly earnings were flat m/m, below projections of a 0.2% increase, and versus August's unrevised 0.4% gain. Y/Y, wage gains were 2.9% higher, versus estimates to match August's unadjusted 3.2% gain. Finally, average weekly hours remained at 34.4, matching estimates.

Job growth has averaged 161,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018, the unemployment rate fell to the lowest since December 1969, and wages posted the slowest y/y pace in over a year. The mixed report was cheered by the markets as it preserved elevated Fed rate cut expectations that ramped up after reports earlier this week showed a 10-year low in manufacturing output and a 3-year low for the key services sector.

Schwab’s Chief Investment Strategist Liz Ann Sonders offers her article, Take Me to Your Leader: Analyzing the Latest Leading Indicators, noting that the manufac-turing side of the economy remains quite weak (although there are some green shoots); while the services/consumer side remains fairly healthy. She adds that if the weakness in the former ultimately morphs into weakness in the latter, we will likely see it through the transmission mechanism of employment or sentiment.

The trade balance (chart) showed that the deficit widened more than expected to $54.9 billion in August, compared to estimates of $54.5 billion. July's deficit was unrevised at $54.0 billion. Exports ticked 0.2% higher m/m to $207.9 billion, while imports rose 0.5% to $262.8 billion.

Treasuries are mixed, with the yield on the 2-year note rising 4 basis points (bps) to 1.42%, though the yield on the 10-year note is dipping 1 bp to 1.52%, and the 30-year bond rate is down 2 bps to 2.02%. For a look at the volatility in the fixed income markets on the heels of the recent soft global economic data and last month's Fed rate cut, while a host of global interest rates remain in negative territory, see Schwab’s Liz Ann Sonders' article, The Final Cut … or More to Come?, as well as Chief Fixed Income Strategist Kathy Jones' commentary, Could Negative Bond Yields Come to America?

Europe higher as the markets digest economic data and focus on trade

European equities finished mostly higher, as the markets digested the mixed U.S. employment report, which came as this week's global manufacturing and services data had fostered a flare-up in growth concerns. Trade remained in focus after yesterday the U.S. announced plans to increase tariffs on some European Union (EU) goods, which appeared to be less severe than was expected. U.K. Brexit uncertainty continued, with Prime Minister Boris Johnson pledging to send a letter delaying the divorce from the EU if he does not reach a deal with the EU by October 19th as the deadline of October 31st approach-es, per Bloomberg. In economic news, German construction output moved modestly back into expansion territory for September. The euro rose versus the U.S. dollar and the British pound was lower, while bond yields in the region were mixed. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Passing the Baton: Signs of Fiscal Stimulus Emerge, noting that after monetary policymakers took action to lower interest rates and ease financial conditions, they have been asking for fiscal policymakers to enact stimulus though stepped-up government spending and tax cuts. Jeff adds that global central bankers may be starting to get their wish – with a growing list of countries unveiling fiscal stimulus over the past two months, concluding that if this is the start of a broader trend, it may bolster business leaders' global economic growth outlook for 2020. Also Jeff discusses in his commentary Q&A on Brexit: The Options and Implications for Investors, how we see five main options for Brexit in the coming months; three result in a near-term resolution while two options result in a further delay or "no deal" Brexit.

The U.K. FTSE 100 Index was up 1.1%, France's CAC-40 Index gained 0.9%, Germany's DAX Index, Spain's IBEX 35 Index and Switzerland's Swiss Market Index advanced 0.7%, and Italy's FTSE MIB Index gained 0.8%.

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