Market Share Newsletter Vol 2 Issue 24

The Economy

• The increase in nonfarm payrolls for the month of September was 661K relative to the forecast of 859K. Despite the headline disappointment, the increase of 877K in private payrolls was stronger than the expected 850K. Manufacturing payrolls (though they do not get the headlines) have been quickly rising. Manufacturing unemployment has dropped from 13.2% at the peak of the pandemic to 6.2% in September which is better than the overall unemployment rate of 7.9%.
• The Institute for Supply Management (ISM) reported that the service sector was stronger than expected in September. The employment index moved above 50 for the first time since the pandemic began—signaling employment growth within the service sector. The other strong growth areas of the ISM service index were new orders and business activity.
• The restaurant industry continues to adapt to a world with COVID, but restaurant data points to some degree are normalizing. According to opentable.com data, seated diners from online, phone, and walk-in reservations, were only down 14.8% on October 5 relative to one year ago (though it has averaged in the -30% to -40% range). The percentage of restaurants open for reservations on September 30 was 79.7%, compared to 56.8% on June 30. The increased usage of reservations will certainly be a lasting effect of the pandemic.
• We continue to reiterate the major bounce in GDP as we watch the third quarter—expectations are for 20-35% improvement depending on the source. The Atlanta Fed GDPNow forecast is predicting an increase of 34.6% in the third quarter. The Federal Reserve is forecasting GDP in the United States to decline by 6.5% this year, but increase by 5% in 2021, and by 3.5% in 2022. The 20-year average GDP growth rate in the U.S. has been 2.1% ending December 31, 2019 (removing pandemic effects).

Economic Data: Recent
	Actual	Survey	Prior
Change in Nonfarm Payrolls	661k	859k	1489k
ISM Manufacturing	55.4	56.5	56.0
University of Michigan Sentiment	80.4	79.0	78.9
New Home Sales	1011k	890k	965k
Economic Data: Upcoming
		Survey	Prior
Consumer Price Index (CPI) MoM		0.2%	0.4%
Retail Sales Advance MoM		0.6%	0.6%
Industrial Production MoM		0.7%	0.4%
Capacity Utilization		72.1%	71.4%

Equities

• McCormick & Company (the spice and seasonings company) reported excellent third quarter earnings last week. Their earnings increased by 5% on a year-over-year (YoY) basis and exceeded expectations, but the real story was the 8% YoY increase in revenues despite some currency headwinds. The company also announced a 2-for-1 stock split.
• We are now on the cusp of third quarter earnings season with Paychex (the payroll and human resources company) reporting a significant top- and bottom-line beat. The remaining part of this week will include third quarter results from Domino’s Pizza on Thursday and next Tuesday JPMorgan Chase, Johnson & Johnson, Blackrock, Delta Airlines, and Citigroup all report.
• Cineworld, the globe’s second-largest movie theater chain, announced on October 5 that they plan to suspend operations at their 700 locations in the United States and the United Kingdom as movie releases continue to be delayed and consumers have shifted away from crowded gatherings. This news affected both AMC Theaters and Cinemark stock prices, but both vowed to stay open. Cineworld stock is down 88.5% year-to-date through October 5 (AMC was down 42.6% and Cinemark -75%).

Equity Index Values and Total Returns
	Value	YTD	1-Year
S&P 500	3,408.6	7.02%	17.55%
Dow Jones Industrial Average	28,148.6	0.43%	8.55%
NASDAQ Composite	11,332.5	27.27%	42.96%
Russell 2000 (small-cap index)	1,582.0	-4.19%	8.03%
MSCI EAFE (developed intl.)	1,884.1	-5.21%	4.51%
MSCI Emerging Markets	526.1	-0.27%	12.00%

 

Source: Bloomberg

 

Fixed Income, Commodities and Currencies

• Based on Bloomberg data, the yields on the lowest rated debt, in the CCC tier, have fallen to their lowest level in two-years. The difference in yields is now 898 basis points more than their comparable U.S. treasury bond.
• Costco, the warehouse club, is now offering gold and silver bars in the United Kingdom. Certainly, the price of gold has had an excellent year and has attracted the mainstream media and consumers’ attention. The global pandemic has created a greater demand for gold, but the United Kingdom creates a different dynamic with Brexit still on the horizon.

Fixed Income Index Yields & Total Returns
	Yield	YTD	1-Year
B’berg Barclays Inter Govt./Credit	0.69%	5.79%	5.38%
B’berg Barclays US Aggregate Bond	1.22%	6.46%	5.84%
B’berg Barclays US Corp.High Yield	5.53%	1.18%	4.33%
B’berg Barclays Municipal Bond	1.36%	3.17%	3.34%
Key Interest Rates
	10/5/20	12/31/19	10/8/15
Federal Funds Target Rate	0-0.25%	1.5-1.75%	0-0.25%
3-Month LIBOR	0.22%	1.91%	0.32%
2-Year U.S. Treasury Note	0.14%	1.57%	0.6%
10-Year U.S. Treasury Note	0.78%	1.92%	2.03%
Prime Rate	3.25%	4.75%	3.25%
Commodities & Currency
	10/5/20	12/31/19	YoY Change
Gold	1,920.1	1,550.6	23.87%
Crude Oil	39.2	61.1	-23.63%
Natural Gas	2.62	2.19	10.42%
Corn	379.5	387.8	0.71%
Soybean	1,021.5	943.0	14.54%
USD: Euro	1.178	1.121	7.36%

 

Source: Federal Reserve