Posted | by David Moenning |

The financial press reported that stocks remained "volatile" on Thursday. But since the Dow ended the day with a loss of "only" 79 points and the S&P 500 fell just 4, the attitude appeared to be, all's well that ends well.

However, at 11:28 am EST, all was definitely NOT well as the Dow Jones Industrial Average was down 784 points. And based on the fact that the market had plunged 800 the day prior, this meant that the index had shed 1583 points in less than a day and a half. So, I will say it again, all was not well at that point in time.

Yes, the algos were clearly at work again yesterday morning. But at the same time, the narrative surrounding the China-US trade deal had gotten worse after the arrest of Huawei Technologies CFO, Meng Wanzhou.

If you are like me, the headline of Wanzhou probably wasn't "wow" moment. But to put things in perspective, this was akin to the Chinese arresting Apple's (AAPL) CFO for national security purposes.

It's that last part that causes people to scratch their heads. The charges against Wanzhou are that she violated the sanctions put on Iran. Sure, this is probably an issue that needs to be dealt with. But given that Ms. Wanzhou is the daughter of Huawei's founder, the arrest did indeed appear to be a "wow" moment.

The move came after Trump had appointed Lighthizer as the chief negotiator for the trade "deal" and the now famous "Tariff Man" tweets. When combined, some argue that Trump appeared to be thumbing his nose at the Chinese. As such, concerns about the potential for a trade deal to get done within the already skinny 90-day window, continued to grow.

By mid-morning, the flush lower in the indices began to have the "indiscriminate" feel that many traders have been looking for in terms of a potential bottom. It was if folks were finally saying, "get me out at any price."

Then Came the Turnaround

At precisely 11:29 am EST, the market turned. And within a couple hours, the Dow had cut its losses in half. And by the end of the day the losses were minimal, and the NASDAQ was actually green.

The "turn" appeared to be triggered by a confluence of factors, not the least of which was the feeling that things had gotten a bit overdone to the downside in the short-term (consecutive 800-point dives will do that). However, there were a handful of other stories that when combined, suggested things might not be as bad as they seemed at the moment.

There was Boston Fed President Raphael Bostic saying that rates were within shouting distance of neutral. There was the Minnesota Fed's Neel Kashkari continuing to say that the Fed shouldn't raise rates any further. There was the IMF's Christine Lagarde saying that the fears of a global slowdown were overblown. Leon Cooperman openly suggesting the SEC needed to investigate the extreme volatility and the impact algos were having on the market. There was Jamie Dimon's remarks. And then there was the WSJ article.

If one compares the time stamp of when the article published on that talked about the Fed stepping back to the 1-minute chart of the S&P 500, it is clear that the algos liked what they had read. The stock indices proceeded to surge higher into the close.

So... If folks hadn't seen the intraday carnage and romping rebound, they couldn't be blamed for thinking that the end result wasn't too bad. And maybe people are getting used to the extreme volatility seen lately. But I for one continue to have a problem with the extreme movements driven blindly by the machines.

Moving On...

It's the first Friday of the month, which means it is time for the Big Kahuna of economic data - the jobs report. So, without further ado, let's get to the report and review the bevy of numbers.

The headline everyone focuses on is new job creation for the month. The Bureau of Labor Statistics reported that Nonfarm Payrolls grew by 155,000 for November, which was below the expectations for 190,000.

As usual, there were revisions to the two previous reports. September's total, which was impacted by Hurricane Florence, was revised upward by 1,000 to 119K from 118K, while October's big job gains were reduced by 13K to 237K (from 250K).

The average monthly job gains over the past three months now stands at 170K (from 218 in October and 190K in September). While the average remains strong from an historical perspective, the trend is moving lower.

Unemployment Rates Holds At Best Level Since 1969

The next big headline in the report was the nation’s unemployment rate, which came in at 3.7%. This was in line with the expectations and unchanged from last month's reading. Note that the current unemployment rate represents a 49-year low as the last time the rate was at 3.7% was December 1969.

The Inflation Implication

On the all-important inflation front, the government reported that wages grew by 0.2% in November, which was a tenth below the Wall Street estimate and down from the 0.3% seen in October (Sept: 0.3%). And on the critical year-over-year view, wages are now up by 3.1% which in line last month's reading of 3.1% (Sept: 2.8%).

Note that this was the second consecutive month where wages grew by more than 3% on a year-over-year basis. The last time average hourly earnings were above 3% on an annual basis was April 2009.

The "U6," which represents a broader measure of unemployment due to the fact that it includes "discouraged workers," rose to 7.6% from 7.4% in October (Sept: 7.5%, August: 7.4).

The Private Sector

Looking at the private sector (which does not include government jobs), the Labor Department says the economy created 161,000 new jobs last month. Recall that ADP reported Wednesday that, according to their tally, the private sector added 179,000 new jobs in October, which was well above the 246,000 new jobs last month (Sept: 230,000, August: 163,000).

The Takeaway

This morning's report showed good job growth but overall was a bit weaker than expected. From my seat, the report is in line with the narrative that the economy is cooling off a bit from the heady growth seen earlier in the year.

From a market perspective, this high profile report is likely to be seen as another input that will push the Fed down the "data dependent" path. Stock futures have improved on the news and have cut earlier losses, but are still pointing to a modest decline at the open.

Thought For The Day:

Challenge yourself to think positively all day today

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - AAPL Note that positions may change at any time.

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