by Connor Darrell CFA, Assistant Vice President – Head of Investments
Markets pushed higher last week despite a weaker than expected August jobs report which revealed a slowdown in hiring but an acceleration in wage growth. Combined, these two trends would suggest that fewer people were put to work during the month, but those that were received higher wages. Manufacturing data also released during the week suggested that U.S. manufacturing activity dropped into contraction for the first time in seven years, likely as a result of the ongoing uncertainty being created by the U.S.-China trade war. Manufacturing activity around the globe has been negatively impacted by trade policy, and it seemed only a matter of time before the U.S. manufacturing sector began to feel those same effects. None of the above news came as a major surprise to investors however, and markets were not significantly impacted. Instead, the confirmation from Chinese negotiators that the U.S. and China were scheduled to hold “serious” talks during October seemed to support investor optimism.

Divergence in the “Soft” Data
Economists often classify economic data into two different categories. Hard data refers to real numbers that are directly measurable, such as GDP growth. Soft data refers to measurements that are derived from survey data, such as consumer confidence. Lately, economists have observed a divergence in the soft data coming from businesses and consumers. For businesses, confidence has been declining as a result of the weakening global growth rates and the uncertainty over the impacts of disruptions to global trade. However, consumers have remained rather optimistic as a result of low unemployment, rising wage growth, and low inflation. Economic demand in the U.S. is driven by both businesses and consumers, but consumers make up a larger component (about 70%). As such, the consumer is in a better position to support the economy moving forward, and the resiliency of consumer confidence remains a key factor in keeping the economic expansion intact.

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Equity markets broke a four-week streak of losses last week, pushed higher by a cooling of trade rhetoric coming out of both the U.S. and China. Both sides confirmed that trade talks remain scheduled for September, and comments from the Chinese Ministry of Commerce suggested that China would not immediately retaliate against the most recent U.S. tariff increase. Bonds generated another week of positive returns as interest rates continued to slide lower. Bond yields have been trending downward for the entirety of 2019 as a result of softening global economic data and negative yielding rates in much of the developed world. The lack of positive yield available overseas has created a surplus of demand for U.S. treasuries and led to a significant increase in prices. 

Despite some of the “warning” signals that have flashed in the bond market over the past several weeks, there remains reason for investors to be cautiously optimistic. The U.S. consumer remains very healthy at this point in time and looks poised to continue carrying the economy forward. Additionally, second quarter corporate earnings came in stronger than expected, with corporate margins holding up particularly well despite the wage pressures created by a tight labor market. All of this bodes well for the resiliency of the U.S. economy, and we continue to recommend that investors remain disciplined in the wake of increased volatility.