October 9, 2017 – Weekly Market Commentary



 

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Jeff Cox – CNBC
US Lost 33,000 Jobs in SeptemberSummary: US payrolls declined by 33,000 in September versus an expected increase of 90,000. The decline is believed to have been driven by the effects of Hurricanes Harvey and Irma and was the first monthly decline in seven years. On a positive note, wages grew at a 2.9% annualized rate and the unemployment rate dropped to a 16-year low of 4.2%. 
 

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Mark Decambre – MarketWatch
Wall Street Fear Hits a Historic Low as Stock Market Scores Rip-Roaring RecordsSummary: The VIX, a popular measure of Wall Street volatility, hit an all-time low last week. The index closed at 9.19, significantly lower than the previous record close of 9.31 set in 1993. The index’s historical average is around 20, but the recent bull market and rising investor optimism have kept the VIX trading around half of that level this year. 
 

U.S. Capitol

Niv Elis and Cristina Marcos – The Hill
House Passes Budget, Paving Way for Tax ReformSummary: The House passed its 2018 budget resolution which sets up a process for shielding the GOP tax bill from a filibuster in the Senate. Budget reconciliation rules would allow Republicans in the Senate to pass tax reform without any Democratic votes, but they can only afford two defections. 
 

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Stephen Gandel – Bloomberg Gadfly
Stocks Are Already Counting on a Tax Cut for 2018Summary: Wall Street analysts are betting big on tax reform. With tax reforms included, current estimates have the S&P trading at a 17.5 price to earnings (P/E) ratio. Without reforms, current price targets would put that ratio at 19 times earnings. Additionally, corporate profit expectations change significantly with and without reform. S&P 500 earnings are projected to increase 12% next year, which could justify a 19x P/E ration, but without tax cuts, the projections drop to 3.5%. 
 

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Richard Turnill – Global Chief Investment Strategist
Opportunities Emerge as Central Banks DivergeSummary: Contrasting inflation outlooks suggest a further divergence in monetary policies. Inflation is likely to head higher in the US while trudging along sideways overseas. US rates should continue to increase in 2018 which could lead to some minor headwinds for US stocks. A continuation of easy monetary policies in Europe and Japan should support both areas equity markets and keep valuations at attractive levels. 
 

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Liz Ann Sonders – Charles Schwab
The Waiting: Wage Growth and Inflation Finally Getting in Gear?Summary: Unemployment and wages both showed a big improvement last month. Sonders points out that median wage growth can yield more insights into the underlying economic picture because average wage growth can be skewed by large shifts in employment demographics. Median wage growth is close to 3.5%, and underlying inflation data is starting to show positive momentum. The results should lead to a December rate hike and multiple rate hikes in 2018. 

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