Member Briefing October 11, 2022
The September Jobs Report: What the Experts Are Saying
The September jobs report was one of those perverse examples of "good news is bad news" as far as the market was concerned. Although payroll growth moderated somewhat, hiring was still more robust than the Federal Reserve would like. Furthermore, the unemployment rate fell to 3.5% – a 50-year low – from 3.7%, and average hourly earnings rose firmly.
We think Charlie Ripley, senior investment strategist at Allianz Investment Management sums up sentiment best: "Today's employment data did little to change the narrative for a Fed committee that has been intensely focused on bringing down inflation. The robustness of the post-pandemic labor market conditions continues to be a problem for the Fed as the current policy measures put in place have yet to bring a meaningful slowdown to the economy. With payrolls still coming in well above 200,000 per month, wage gains still elevated, the Fed will have to remain aggressive in the near term and another 75 basis point hike in November appears to be in the cards."
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia Unleashes Its Biggest Barrage of Strikes on Ukraine Since Invasion - WSJ
- What We Know About Putin’s Mass Strikes on Ukrainian Cities – The Hill
- UN: Ukraine Nuclear power Plant Loses External Power Link - AP
- Huge Explosion Destroys Part of Bridge Linking Russia and Crimea – NBC News
- Russia Scrambles to Reconnect Supply Lines to Crimea After Bridge Explosion - WSJ
- In Maps - Ukraine Has Made Stunning Gains on the Battlefield – The Economist
- Zelensky: Russian Officials Starting to ‘Prepare Their Society’ for Use of Nuclear Weapons – The Hill
- Watch: Eiffel Tower, Louvre Go Dark at Night Amid Europe Energy Crisis - WSJ
- The Memo: Biden’s ‘Armageddon’ Warning Raises Fresh Questions – The Hill
- BAE, U.S. in Talks to Restart M777 Howitzer Production After Ukraine Success - WSJ
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Fed’s Brainard Says Rate Rises Will Slow Economy Over Time
A senior Federal Reserve official cautioned it would take time for the central bank’s rapid rate rises this year to reduce inflation that has reached 40-year highs. “Monetary policy will be restrictive for some time to ensure that inflation moves back” to the central bank’s 2% target, said Fed Vice Chairwoman Lael Brainard in remarks prepared for delivery Monday. “It will take time for the cumulative effect of tighter monetary policy to work through the economy and to bring inflation down,” she said.
Ms. Brainard, who is part of the inner circle of policy-shaping discussions with Fed Chairman Jerome Powell, didn’t elaborate on the rate outlook in her prepared remarks before the annual meeting of the National Association for Business Economics in Chicago. But her remarks cited a list of reasons why the economy was likely to slow over the coming year, including the effects of rapid rate increases by central banks around the globe, which would put downward pressure on inflation.
Earnings Season Kicks Off with Gloomy Expectations
Earnings season for Q3 starts in earnest this week with the traditional curtain-raiser of big bank results. JPMorgan Chase (JPM), Citi (C) and Wells Fargo (WFC) all weigh in with numbers on Friday. But analysts and investors are not looking for bullish numbers that can give the overall market a boost, with expectations for earnings per share growth consistently coming down into reporting season and an overall sense that the broader market will react badly.
Third-quarter S&P 500 (NYSEARCA:SPY) EPS growth is now expected to be 2.6%, down from 9.8% in July, according to FactSet. Analysts have cut profit forecasts by $34B and if the consensus is correct, it would be the worst quarter for bottom lines since Q3 2020, in the depths of lockdown, the FT reported. What does that mean for stocks? According to the latest MLIV Pulse survey of investors, more than 60% believe this earnings season will push the S&P 500 lower.
US COVID – Daily Incidence, Hospitalizations and Mortality Decline
The US CDC is reporting 96.3 million cumulative cases of COVID-19 and 1.06 million deaths. Daily incidence continues to decline, down to 44,414 new cases per day, the lowest average since April. Average daily mortality now appears to be decreasing steadily, down from a recent high of 505 deaths per day on August 12 to 330 on October 4. Both new hospital admissions and current hospitalizations continue to exhibit downward trends, with decreases of 6.9% and 8.1%, respectively, over the past week. Both trends peaked around the end of July, approximately 1 week after the peak in daily incidence.
The BA.5 sublineage continues as the dominant strain in the US, accounting for 81.3% of sequenced specimens; however, its estimated prevalence has decreased for 4 consecutive weeks. Several other Omicron sublineages are exhibiting increasing trends over the past several months. Notably, the BA.4.6 sublineage is up to 12.8%, BF.7 is up to 3.4%, and BA.2.75 is up to 1.4. Relative to the BA.5 sublineage, these estimates are low, but the increasing trends suggest that these subvariants may have some advantage over BA.5.
NYS COVID Update
The Governor updated COVID data through September October 7.
- Daily: 16
- Total Reported to CDC: 74,391
- Patients Currently in Hospital statewide: 2,433
- Patients Currently in ICU Statewide: 226
7 Day Average Positivity Rate - Cases per 100K population
- Statewide 6.74% - 20.06 positive cases per 100,00 population
- Mid-Hudson: 7.05% - 19.88 positive cases per 100,00 population
How the Polls Look in 2022's Senate Swing States – 50/50 Split Remains Strong Possibility
The battle to control the 50-50 Senate is at a stalemate — at least according to the polls. With 30 days to go until Election Day, polling averages suggest Democrats and Republicans are each poised to win 50 Senate seats. Each party currently has the lead in just one seat currently held by the opposition: The Republican is slightly ahead in Nevada, while the Democrat has the lead in Pennsylvania. And the polling averages in POLITICO’s four Toss Up races remain tight — including in Georgia, where there’s only been a single, one-day survey conducted since the September 30.
This is the first weekly check-in on the latest polling in 10 key Senate races this fall. Each capsule includes the current leader in the RealClearPolitics polling average, where the polls stood at this point in the presidential race two years ago, and the eventual winner (and margin of victory) in 2020.
Siena Poll: Democrat Josh Riley Leads Republican Marc Molinaro in NY-19
Democrat Josh Riley holds a five-point, 46-41% lead over Republican Marc Molinaro in New York’s new 19th Congressional District. Riley is viewed favorably by 28% of voters and unfavorably by 19%, while 53% don’t know him or have no opinion. Molinaro has a negative 26-38% favorability rating, while 36% don’t know him or have no opinion. according to a new Spectrum News/Siena College poll of likely NY 19 voters released October 6th. Within the district Governor Kathy Hochul and her Republican opponent, Rep. Lee Zeldin, are separated by one point, with Zeldin ahead 46-45%.
“First time candidate Riley has the support of 83% of Democrats and is leading 46-40% with independents, offsetting Molinaro’s 78-5% lead with Republicans in this district that has a four-point Democratic enrollment edge and in which President Joe Biden won by four points,” Siena College pollster Steven Greenberg said. “While Molinaro leads with men by eight points, Riley has an 18-point lead with women.
Will There Be a Winter Surge in COVID Cases?
Experts are keeping an eye on whether the United States will experience a surge in SARS-CoV-2 cases, hospitalizations, and deaths during the fall and winter seasons, a potential that looks increasingly likely. Several factors point to a forthcoming wave: the number of new cases is rising in Europe, and the US historically has followed that region’s trend; several emerging SARS-CoV-2 Omicron sublineages appear to be more capable of evading immune system protection and therapies, as discussed above; individual immunity—from vaccination or prior infection—continues to wane, and policy and behavioral changes have limited the positive impact of previously implemented mitigation measures, such as mask use and physical distancing.
Many experts stress that waning immunity could be one of the strongest predictors of a fall/winter surge in COVID-19 cases, especially if there is low uptake of new bivalent booster doses authorized in early September. Additionally, experts are nervous about the impact of any surge in cases on already stressed healthcare and hospital systems. Increases in demand for care—from COVID-19, influenza, or other illnesses—will challenge hospitals that are overloaded and currently experiencing a limited availability of healthcare workers, many of whom are burnt out, having been driven to the point of exhaustion.
IBM Announces $20 Billion in New Investments in the Hudson Valley
IBM announced Thursday, October 6 that it would spend $20 billion in new investments in the Hudson Valley of its home state over the next ten years. President Biden joined IBM CEO Arvind Krishna to tour the company’s Poughkeepsie, New York facility and help make the announcement. (Air Force One landed at Stewart Airport as the Council's Certificate in Manufacturing Leadership Series kicked off at the Larkin Conference room overlooking the runway.)
According to IBM, the New-York based computing and electronics company and Council of Industry member, already employs more than 7,500 in the Hudson Valley. The Poughkeepsie IBM site is where the z16 mainframe, a product which utilizes artificial intelligence, was tested and is manufactured. IBM also opened up the first Quantum Computation Center in Poughkeepsie in 2019. In a statement, IBM CEO Arvind Krishna said he was “honored” to host President Biden at the factory and called for more investment in “innovation and discovery.”
UNCTAD Warns of Policy-Induced Global Recession
Monetary and fiscal policy moves in advanced economies risk pushing the world towards global recession and prolonged stagnation, inflicting worse damage than the financial crisis in 2008 and the COVID-19 shock in 2020, UNCTAD warns in its Trade and Development Report 2022.According to the report, rapid interest rate increases and fiscal tightening in advanced economies combined with the cascading crises resulting from the COVID pandemic and the war in Ukraine have already turned a global slowdown into a downturn with the desired soft landing looking unlikely.
“There’s still time to step back from the edge of recession,” UNCTAD Secretary-General Rebeca Grynspan said. “We have the tools to calm inflation and support all vulnerable groups. This is a matter of policy choices and political will. But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”
As EV Sales Grow, Battle Over Road Weight Limits Heats Up
Car haulers are pushing the Biden administration and lawmakers to increase truck weight limits on U.S. highways so they can transport more heavy electric vehicles, a move fiercely opposed by the rail industry and safety advocates who say the heavier loads are significantly more dangerous. Even before a recent spike in EV sales, U.S. roads have been carrying heavier loads, as cars and trucks climbed from an average of 3,200 pounds to 4,200 pounds over the last four decades, according to the Environmental Protection Agency.
EVs, with their heavy batteries, weigh significantly more than gas-fueled cars. While they make up less than 1 percent of cars on U.S. roads, President Joe Biden wants EVs to reach half of vehicle sales by 2030, and he and his Democratic Party have put billions in federal funds behind the goal.
Hurricane Ian Traumatized Floridians. It Also Erased Their Nest Eggs
As Florida tallies the immediate tab from its deadliest hurricane in decades, the destruction it wreaked on homes will erase retirees’ nest eggs and families’ primary way of passing along wealth to new generations. That exposed the dangers of American dependence on housing as most people’s financial backstop and lifeline.
Home ownership is the primary way most Americans build wealth. For decades, federal policy has placed a priority on making more Americans homeowners, seeing it as the clearest way to achieve long-lasting financial security and generational prosperity. But climate change is jeopardizing that.
U.S. Jobless Claims Rose Last Week but Remain Historically Low
Initial jobless claims, a proxy for layoffs, increased to a seasonally adjusted 219,000 last week from a revised 190,000 the week before, the Labor Department said last Thursday. That was the highest level since late August but close to the 2019 average of 218,000. Claims have hovered around that prepandemic average for most of this year.
Layoffs rose slightly. Employers added 315,000 jobs that month, compared with 526,000 jobs in July. The four-week moving average for jobless claims, which smooths out weekly volatility, was nearly unchanged at 206,500. Continuing claims, a proxy for the number of people receiving ongoing unemployment benefits, increased to 1.36 million in the week ended Sept. 24 from 1.35 million a week earlier. Continuing claims are reported with a one-week lag.
Pentagon to Resume F-35 Deliveries After Chinese Materials Discovered
The Pentagon has approved a national security waiver to restart F-35 fighter deliveries after Lockheed Martin discovered a metal component in the jet had come from China, according to three people with direct knowledge of the decision. The problem underscores issues with the U.S. supply chain and shows that large defense contractors are unaware of every detail, LaPlante told reporters Sept. 9.
Congress was notified on Friday that the Pentagon had completed its investigation and that William LaPlante, undersecretary of defense for acquisition and sustainment, has signed a national security waiver, meaning the Defense Department would not replace the part in aircraft that have already been delivered. The three people spoke on condition of anonymity in order to discuss the decision before it is announced.
Supply Chains Still Hampering Automakers in Various Ways
Supply chain issues have hampered the auto industry since the beginning of the pandemic, and analysts following the industry say that automakers are offering mixed signals about the state of the market. “I find it interesting because you would feel like it's a fairly consistent issue on these supplies, but it seems like it's starting to get spotty or certain automakers are coming back quicker than others, and they're benefiting from the slow reproduction and recovery of the supply chain issue,” iSeeCars.com Executive Analyst Karl Brauer told Yahoo Finance Live (video above).
General Motors posted a big sales gain in the third quarter, a reverse from the previous quarter as the company touted improved vehicle availability and strong demand. The automaker said its U.S. sales rose 24% compared to the same period last year from 446,997 to 555,580. Ford, is another example of an automaker trying to bounce back from supply chain disruptions. The company saw overall vehicle sales fall in September while electric vehicle (EV) sales triple, helping the company gain 3.1% in EV market share. At the same time, the company again increased the price of its electric F-150 Lightning Pro truck amid "ongoing supply chain constraints, rising material costs and other market factors."