The AM Call: October Surprise

• Friday’s payroll report was the macro news of the week. September nonfarm payrolls rose by 254,000, beating the estimate for 150,000, and higher than all estimates. The August number was also revised higher. Employment has been the primary focus for the Fed in recent months, and the September report demonstrated that the employment landscape remains healthy.

• The unemployment rate declined by 0.1% to 4.1%, while average hourly earnings climbed by 4.0% YoY, versus the estimate for 3.8% (August was revised higher to 3.9%). Despite triggering the Sahm rule (in which a rise in the unemployment rate of 50 bps or more leads to a recession) in August, there is no indication of recession at this time. We continue to see that the U.S. economy has adapted well to higher interest rates, with GDPNow indicating 2.5% real growth for 3Q24.

• The strong jobs figures led markets to reprice the chances of another -50 bps cut at the November FOMC meeting. Instead, markets are now pricing in a -25 bps cut in November, with a small chance of no cut. As of this writing, the 10Y Treasury is back to 4% for the first time since July.

• Equities were mostly flat for the week, as a late week rally driven from positive employment data and an end to the dockworker strike erased earlier losses. In earnings, 2Q24 results came to a conclusion as Nike (NKE) disappointed while Carnival Cruises (CCL), McKesson (MKC) and Paychex (PAYX) posted in line figures. Equities are higher year-to-date across all sectors, led by utilities, communications, and info tech.

• In corporate news, Apple (AAPL) is expected to announce lower entry level iPhones for next year, Tesla (TSLA) revealed deliveries that came slightly short of expectations albeit up 6.5% from last year, and Nvidia (NVDA) rallied after CEO Jensen Huang said in a CNBC interview that demand for its new Blackwell chip line was “insane.” CVS (CVS) is undertaking a strategic review that is believed to include the possibility of separating its drugstore and health insurance businesses, and Humana (HUM) shares sold off after it received a significant downgrade in Medicare Advantage ratings/ Boeing (BA) is considering raising capital by selling over $10 bn in additional stock which could result in dilution in excess of 10% for current shareholders.
• In M&A, OpenAI raised $6.5 bn at a $150 bn valuation which included additional investment by Microsoft (MSFT) and a new investment by Nvidia (NVDA). Marsh & McLennan (MMC) will acquire McGriff Insurance for $7.8 bn, and DirectTV (DTV) will acquire rival Dish Network (DISH) for $1, while assuming outstanding debt.
• Elsewhere, Moody’s upgraded the credit rating of Brazil to Ba1, and maintained a positive outlook. The rating upgrade positions the country to regain investment grade status if upgraded again. Many Brazilian corporates, including Gerdau, Itau, Bradesco, and Vale, were also upgraded given the higher sovereign ratings.

The Week Ahead

• For this week, markets will be focused on updated inflation indicators as both CPI and PPI for September will be released this week. CPI is expected to increase by 0.1% on a MoM basis, and up 0.2% on a core MoM basis. On a YoY basis, core CPI is expected to hold steady at 3.2%.

• PPI Final Demand is forecast to rise by 0.1% MoM and by 0.2% MoM excluding Food and Energy. On a YoY basis, PPI excluding Food and Energy is forecast to rise by 2.7%.

• This week, third quarter earnings season with JPMorgan Chase (JPM), BlackRock (BLK), Wells Fargo (WFC), BNY Mellon (BK), Fastenal (FAST), Pepsi (PEP), Delta Air (DAL) and Domino’s Pizza (DPZ) among companies set to report.

Market Summary – Returns and Yields

• Focusing on the year-to-date column, we note that both fixed income and equities are up solidly across most all indices.

For additional insights, be sure to check out last week’s blog post.

Definitions, sources, and disclaimers

This content is being published by Amerant Investments, Inc (Amerant Investments), a dually registered broker-dealer and investment adviser registered with the Securities and Exchange Commission (SEC) and member of FINRA/SIPC. Registration does not imply a certain level of skill, endorsement, or approval. Amerant Investments is an affiliate of Amerant Bank.

Definitions:

• Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
• GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
• The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
• Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
• The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
• The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
• Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
• Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
• The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
• The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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