It’s September already? Really? Well, August closed on a positive note and the S&P has now been in the black for seven months in a row. Not quite rarified air, but it’s getting there, as you can see below.
So naturally we must be due for a correction? Maybe. Septembers tend to trade on the soft side, but the historical performance after seven month win streaks for the S&P isn’t bad, as you can see below.
But the chart above is another way of saying that equity markets tend to go up over time. So, it is hard to make big bets on stuff like this. But to the extent that both economic and earnings growth tends to persist month-to-month, it makes sense that trends persist.
On the economic front, it is becoming clear that activity is slowing down. Granted, home prices set another record. This week’s Case-Shiller report showed they increased at a year-over-year rate of +18.6% in June, the highest reading in more than 30 years of data.
But Friday’s jobs report was a miss. The U.S. economy added just 235,000 jobs in August, far below the consensus estimate of 725,000. Amazingly, the consensus was made up of 70 estimates that ran from a low of 400K to 1MM. the one bit of good news was the dip in the unemployment rate to 5.2%.
Two sectors made up the bulk of the jobs miss: leisure and hospitality, which added no jobs last month after averaging 377,000/month over the prior three months, and public education, which lost 26,000 jobs last month after averaging 135,000/month the prior three months.
The other confounding data point in the jobs report was the wage number – average hourly earnings ticked higher by a good amount, as you can see below.
This explains why the 10-year Treasury yield actually increased on Friday despite the poor growth number. Hints of stagflation maybe?
Certainly, headline GDP growth could underwhelm for the third quarter. After Friday’s jobs report the Atlanta Fed estimate dipped below +4%.
Much will depend on how the spread of the delta variant evolves this month.
Charts We Found Interesting
1. While case counts continue to grow, the rate of change is slowing.
2. The same chart for Israel is stunning!!
3. The COVID pandemic now shows up in the life expectancy data. But I don’t know if it is the latest dip that stands out or the uninterrupted improvement in the post-war period.
4. Salt Lake City has recovered all the jobs lost during the pandemic, and then some. San Francisco – not so much.
5. The general perception is that October is the weakest month of the year. Actually, September is more consistently down.
6. A substantial part of China lacks the minimum 15 inches of rainfall to sustain agricultural production. The line of demarcation is called the 15-inch isohyet, which cuts modern China roughly in half. Basically, all of China’s food production and 94% of China’s population is east of the 15-inch isohyet.
7. Are fires in California bigger and/or more frequent today? An interesting study looked at the record from 1850 (the whole report here. The key chart below shows all fires over 10,000 ha during the last 160 years (left panel) and frequency (right panel). Exceptionally large fires followed a bimodal pattern with peaks in the nineteenth century and again in the twenty-first century, separated by a low point in the 1950s. What’s not shown is California’s population – 93K in 1850, 1.5MM in 1900, and roughly 40MM today.
Have a good weekend.
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