Overview: Markets traded with heightened volatility last week as investors looked for direction from economic data. Stocks sold off sharply early in the week, as the U.S. ISM manufacturing index fell to 47.8 in September, a multi-year low. Survey participants cited concerns for tariffs, labor resources, and the direction of the economy. Markets bounced back later in the week, and the S&P 500 index finished down about -0.3%. International developed stocks (MSCI EAFE) fared worse, down about -2.2%, as weak economic data, geopolitical tensions, and Brexit concerns dragged down markets. Bonds rallied in a flight-to-safety trade, with the 2-year Treasury lower by 23 basis points in yield, finishing the week at 1.39%. Markets are now pricing in about a 50/50 chance of one or two more rate cuts for 2019, from the current funds level of 2%. Markets continue to look for direction from economic data. On Friday, the September jobs report was mixed. Non-farm payrolls rose by 136,000, missing the consensus of 145,000. On the positive side, the previous month jobs number was revised upward from 130,000 to 168,000, and the unemployment rate dropped to a 30-year low of 3.5%.
Looking Ahead: Key dates for future events in October are the ECB meeting on Oct. 24, the next Federal Reserve meeting on Oct. 30, and the Brexit deadline of Oct. 31. Focus will be on corporate earnings, as the third quarter earnings season will shift into full gear next week. Slower global growth, lower oil prices and a stronger dollar are expected to weigh on earnings per share (EPS) growth this quarter. According to JP Morgan, consensus EPS estimates currently are for S&P 500 operating earnings per share to contract -1.4%. Comparisons for this quarter vs. third quarter 2018 are difficult, as a year ago markets saw record levels for both margins (12.1%) and EPS ($41.38).
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