Strong Jobs Data

By: Kent Engelke | Capitol Securities

In my view, June’s employment report was strong. Non-farm and private sector payrolls growth was greater than expected. Prior months’ gains were revised higher. Hiring in the manufacturing sector is at the fastest pace since 1998.

The unemployment rate rose to 4.0% from 3.8%, the result of more workers entering the work force. The increase in the labor participation rate to 62.9% from 62.7% is further evidence of workers reentering the workforce, the greatest participation since 2009. Historically, the LPR is around 66.5%-67%. This reentry of workers however is serving as a governor on wages as wage growth was slightly lower than expected.

I believe the data is the clearest indication the economy has finally reached the proverbial “escape velocity” inflection point or the juncture where growth is over a 3.0% sustainable rate.

Markets responded favorably to the data, ignoring the ongoing trade drama.

Radically changing topics, Bloomberg commented there is a massive slowdown of funds going into both mutual funds and ETFs. The newswire reported Vanguard — the world’s second largest money manager — collected 42% less money in both actively managed mutual funds and passive ETFs during the first six months of the year… $138 billion down from $237 billion. Wow!

Bloomberg further wrote total US funds flows — money going into exchange traded, active and passive mutual funds — fell by 50% [$200 billion versus $400 billion] as compared to the same period of 2017.

Wow! It is apparent the vast majority of funds — both new and existing — have gravitated to just four companies. Last week I referenced Goldman’s research stating four companies accounted for 88% of the S & P 500 gains. One company contributed 36% of these gains and another 18%. These companies are posting a 47% and 111% 2018 advance.

The companies referenced above are not explosive growth small capitalized companies. One is the third largest company in the S & P 500, while the other is the twenty-fifth largest entity. The increase in value of these two companies in 2018 is unfathomable… approximately $500 billion.

As noted above, total new 2018 funds in active and passive mutual funds was $200 billion. Wow! What myopicy!!!

Earnings season commences later this week with the release of several money center banks. How will the results be interpreted? Analysts are expecting a 20% increase in profits and a 9% gain in revenues.

Last night the foreign markets were up. London was up 0.28%, Paris was up 0.29% and Frankfurt was up 0.02%. China was up 2.47%, Japan was up 1.21% and Hang Sang was up 1.32%.

The Dow should open nominally higher as attention is now beginning to be focused upon earnings. The 10-year is off 8/32 to yield 2.86%.


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