September Blues
The Bureau of Labor Statistics released their Non-Farm Payroll number on Friday indicating the US added an estimated 235k jobs in September, much less than the consensus forecast of 733k. While areas such as private education and warehouses saw notable increases in employment, retail sales saw a contraction in jobs mostly in the hospitality and food and beverage service subsector. Furthermore, while unemployment declined to 5.2%, it is still well above the pre-pandemic levels with women, minorities, and young workers all experiencing unemployment rates above the national average.
Fears surrounding the Delta variant of Covid-19 are weighing down market sentiment. The overall wariness and fear that the covid variant would hamper the reopening of the economy saw work-from-home stocks start to outperform once again. As the markets digest this underwhelming news as well as other sentiment data, the Dow and the S&P are both off their highs, with a modest decline today while the NASDAQ eeked out a small gain. The ‘Fear Gauge’ (Volatility Index, or VIX) has remained range bound oscillating between 15-20 over the last handful of months.
(courtesy: StockCharts)
(courtesy: Johns Hopkins)
(Courtesy: CBOE.com)
However, there are some reasons for optimism. There is work on booster shots to tackle these pesky variants. Also, some preliminary data indicates that prior exposure to any Covid strain may help protect against the Delta variant. Note: Research from Israel has not been peer reviewed.
The Institute for Supply Management (ISM) Backlog of Orders Index continued to decline, as did their Service Prices, though both remain elevated compared to pre-pandemic levels. Additionally, The Business Inventory Sentiment Index is off its bottom, but still in ‘Too Low’ territory at ~42 (with 50 being ‘Just Right’ and over 50 indicating too much inventory) improving from the 30s the last few months. Together these collectively point to some of the supply bottlenecks issues easing.
Overall, while there is fear of what the Delta variant may do to the economy, there is hope. The VIX still remains range-bound, and the ISM data provides some further green shoots for a return to normalcy. Nonetheless, while odds are improving, the probability you can score a PS5 for your kid for the holidays remains lower than you may want.
Nick Codola, Sr. Research Analyst