Once again, the NASDAQ Composite was the only major index finishing in the black this past week and we do not believe that this outperformance will be challenged at least for the remainder of the year as these companies are obviously at the forefront of the development of Artificial (Super) Intelligence. That said, as noted below, historically October can be a volatile month and as we approach the mid-term election, we don’t expect this October to be any different.
- Interest rates continued to push higher this past week as a result of continued stronger than expected economic data, concerns over the stickiness of inflation, competition from publicly traded companies as they issue debt to pay for capital expenditures surrounding the buildout of Artificial Intelligence (AI) and hawkish comments coming from members of the Fed. The yield on the two-, five-and ten-year U.S. Treasury Notes rose from 4.81%, 4.98% and 5.17% to 4.83%, 5.06% and 5.28%, respectfully. We believe that after the recent run-up in rates, they will remain at or around these levels as demand for Treasuries increase. Extending duration should be considered.
- Something to look forward to. Since 1950, September has been the weakest month of the year, dropping by an average of 0.72%. February and August are tied for second with average drops of 0.01%. However, the two-month period, November and December are the two top performing months at 1.82% and 1.49%. We just have to make it through October, as according to Bespoke, since 1990, it represents the most volatile month of the year, with an absolute change of +/- 4.23%.
- Consumer Confidence Slipped During September (see below). According to Dana Peterson, Chief Economist, at the Conference Board, the source of this survey, “Consumer appraisals of current business conditions became negative for the first time since September 2024. Perceptions of the current labor market also worsened, though remained within positive territory. Over the next six months, consumers expected both business conditions and the labor market to weaken. Consumers still anticipated their household incomes to rise, but less so compared to previous months.”
Economic Data That Drove Market Sentiment This Past Week…
- Non-Farm Payrolls(approximately 80% of the U.S. workforce) rose by 29,000 during September, substantially below the consensus estimate of 84,000. Payrolls for August and July were revised lower by approximately 60,000 from previously reported. Year-to-date, payrolls have risen by an average of 68,000. Despite the lackluster results, given the lack of immigration along with advances in technology, this may be the new normal. Private Sectorcompanies added 46,000 jobs while the Public Sectorshed 17,000. Employment by the Federal Government has fallen by ~356,000 since peaking in October 2024. Payroll data was influenced by construction (11,000), manufacturing (9,000) and financial activities (-7,000). The Unemployment Rateticked up to 4.2% during September from 4.1% one month prior. The Unemployment Rate had gotten as low as 3.4% in April 2023. According to the household survey, the labor force rose by 486,000 as the number of employed rose by 406,000. The Labor Force Participation Raterose to 61.8% during September from 61.6% in August. The Under-Employment Rate, which includes those unemployed as well as those who were either marginally attached to the labor force or were involuntarily working part-time (Table A-15; U6) fell to 7.6% during September from 7.7% in August anda seasonally adjusted 7.7% one year prior. Average Hourly Earnings rose 0.13% or $0.05 to $37.81 during September from $37.76 one month prior and by $1.11 or 3.02% from $36.70 y/y.The Average Duration of Unemployment(Table A-12) improved to 24.8 weeks in September from 26.3 weeks in August, up from 24.7 weeks (SAAR) recorded one year ago. The number of Long-Term Unemployed (27 weeks or longer) rose 14,000 or 0.73% to 1,944,000 in September from 1,930,000 in August, above the level of 1,808,000 (SAAR) one year ago. Those unemployed less than 15 weeks totaled 56.4% of the unemployed while those unemployed 15 weeks and longer totaled 43.6% as compared to 57.0% and 43.0% one month ago. (Source, U.S. Department of Labor)
- The Institute for Supply Management’s composite index of manufacturing sector activityslipped to 54.5 during September from 54.6 in August. Generally, a reading above 50% indicates that the manufacturing economy is expanding, below indicates one in contraction. Of note was the change in New Orders(55.3% v. 53.7%), Production (56.7% v. 58.3%), Supplier Deliveries(inverse, higher number indicates slower delivery times)(59.0% v. 59.3%), Inventories (48.6% v. 50.6%) and Employment(52.7% v. 51.2%). The Prices Paid Componentjumped to 77.9 during September from 71.1 in August. (Source, Institute for Supply Management)
- U.S. Construction Spendingrose 0.9% in August (-1.7% y/y), after sliding 0.1% during July. Private Construction Spendingrose 1.1% in August (-3.1% y/y), after falling 0.2% during July. Private Residential Construction Spendingrose 1.1% during August (-4.8% y/y), after falling 1.1% in July. Private Nonresidential Construction Spendingrose 1.0% during August, after rising 0.8% higher in July (-1.0% y/y). Lastly, spending on Public Projectsrose 0.2% during August (2.5% y/y), after rising 0.1% during July. (Source, U.S. Census Bureau)
- Second Quarter Inflation Adjusted (Real) Gross Domestic Product (second revision), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at an annualized rate of 2.2% (2.2% y/y), revised sharply higher from the previous revision of 1.5%, but lower than the 2.1% SAAR during Q1. Real Final Sales to Domestic Purchasers rose at an annualized rate of 4.6%, up from the previous estimate of 4.2%. Government Spending (Government Consumption Expenditures and Gross Investment), slipped by a revised 0.1% during Q2, an improvement from the 1.0% decline previously reported. The PCE Price Index rose at a revised annual rate of 5.0% during Q2, down from a previously reported 5.3%. While thePCE Price Index Excluding Food and Energyrose at a revised annual rate of 3.3% during Q2, down from a previously recorded 3.6%. (Source, U.S. Bureau of Economic Analysis)
- The Bureau of Economic Analysis reported that Personal Incomerose 0.3% during August after rising 0.4% in July. After adjusting for inflation, Personal Incomerose 0.0% during August after rising 0.3% in July. Consumer spending, or Personal Consumption Expendituresrose 0.9%, after edging 0.1% higher in July. After adjusting for inflation, real consumer spending rose 0.6%. Inflation remains a key factor, as the PCE Price Index rose0.3% (3.4% y/y) during August after rising 0.1% in July. The core index, which excludes volatile food and energy costs, rose 0.2% from the previous month and by 3.0% y/y. Amidst these shifts, the Personal Saving Raterebounded to 4.1% of disposable income, up from 3.0% in July.
- The Conference Board’s Consumer Confidence Indexfell to 81.9(-13.1% y/y) during September from 88.6 in August.The present situation indexfell to 109.3 in September from 117.2 (-12.8% y/y) while the expectations componentslipped 5.9 points to 63.6 (-13.4% y/y) from 69.5. Those surveyed saying that jobs are “hard to get”rose to 21.9% of respondents during September from 20.3% in August while those claiming that jobs were “plentiful”fell to 23.6% of respondents from 24.5% during those same months.
- The Bureau of Labor Statistics reported that the total job openings from the Job Openings and Labor Turnover Summary (JOLTS) on the last business day of August totaled 7.079 million (-2.0% y/y), down 256,000 from 7.335 million one month prior. Job Openings have fallen from a high of 12.182 million in March 2022. This compares with total hires, which rose 46,000 to 5.192 million from 5.146 in Julye, leaving a gap of approximately 1.887 million between job openings and those available to work, down 330,000 from theprior month. The total number of Job Separations, which includes quits, layoffs, discharges and other separations fell 58,000 to 5.070 million in August from 5.128 million in July. Quits (Table 4) fell 28,000 to 3.066 million in August from 3.094 million in July. (Source, U.S. Bureau of Labor Statistics)
Economic Reportsscheduled to be released this week, include the following – on Monday, September Service Purchasing Managers’ Index; on Tuesday, August U.S. Trade Balance; on Wednesday, August Consumer Credit; on Thursday, the Initial Weekly Claims for Unemployment Benefits; and, on Friday, Preliminary October Consumer Sentiment from the University of Michigan.Several potentially market moving companies are scheduled to report earnings, to includeLamb Weston (LW), Constellation Brands (STZ), Worthington Steel (WS), Levi Strauss (LEVI), Progressive Corp (PGR), PepsiCo (PEP) and Delta Air Lines (DAL).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
