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A Surprising Payroll Miss Reframes The Fed Outlook · HPK Provident Advisors: The Weekly Bull

• 0:06
  SPEAKER_01: Welcome to Friday Live.
• 0:07
  SPEAKER_01: Every Friday, some of the partners of HBK Providen get together and discuss what we're seeing going on in the markets, the economy, and tying in some financial planning topics.
• 0:15
  SPEAKER_01: So hopefully my video starts to catch up with uh with the real time.
• 0:21
  SPEAKER_01: But um welcome everyone.
• 0:23
  SPEAKER_01: This is one of my favorite days of the month, perhaps the my most favorite because it's the most impactful for the US economy, is the first Friday of the month, which means non-farm payrolls.
• 0:35
  SPEAKER_01: Um, so contrary to expectations, which we're calling for a 90,000 increase in payrolls, we got 29,000 increase.
• 0:46
  SPEAKER_01: Um, and this comes with revisions to the prior two months of about 60,000.
• 0:51
  SPEAKER_01: So now instead of the three-month average being about 90,000, we're about 50,000-ish.
• 0:57
  SPEAKER_01: Um unemployment rate did tick up for the first time in a while to 4.2%.
• 1:02
  SPEAKER_01: I think one of the most alarming numbers is the earnings growth of the month came in at 0.1%.
• 1:09
  SPEAKER_01: We've been hovering around the 0.3% range, which was being outpaced by inflation and even more so now.
• 1:16
  SPEAKER_01: So we're about 3% on a on an annualized basis there.
• 1:20
  SPEAKER_01: Um some positive takeaways from the jobs report.
• 1:24
  SPEAKER_01: Um, not today, I would say uh participation rate going up, uh average hour or average work week seems pretty good.
• 1:33
  SPEAKER_01: We saw a slight uptick there versus consensus.
• 1:38
  SPEAKER_01: And then, you know, the ADP private payroll numbers are very good on the month.
• 1:42
  SPEAKER_01: They came in at 90,000.
• 1:44
  SPEAKER_01: We got that a couple days ago.
• 1:45
  SPEAKER_01: So that's a little more promising.
• 1:48
  SPEAKER_01: Um, on the PCE deflator, which is the Fed's preferred inflation gauge, um, overall came in pretty good, um, better than expected.
• 1:57
  SPEAKER_01: Uh the core came in at 0.25%, a quarter of a percent for the month, and the headline came in at 0.31% for the month, which are both better than expected.
• 2:08
  SPEAKER_01: Now you saw a nice improvement on the annualized numbers, uh, core being 3% down from 3.3%, and headline coming in at 3.4%, which was three tenths lower than expected.
• 2:21
  SPEAKER_01: Now, there was some adjustments in um in the figures, the way they calculated.
• 2:28
  SPEAKER_01: There's an adjustment to financial services, law firms, and I think one other category.
• 2:34
  SPEAKER_01: So you're gonna have to take the annualized basis with a grain of salt.
• 2:38
  SPEAKER_01: Um, but the overall trend in monthly numbers um still paints the picture.
• 2:44
  SPEAKER_01: Um the markets, the reaction today to the non-farm payrolls initially very good.
• 2:50
  SPEAKER_01: Um we were up well over a percent on the SP 500 that has paired back gains.
• 2:58
  SPEAKER_01: Um now you might be asking, why in the world would the market react positively to a weak jobs report?
• 3:06
  SPEAKER_01: And it all comes down to the Fed.
• 3:07
  SPEAKER_01: Um, initially, we saw a nice downtick in the longer end yield curve and the short end, but those have both reversed.
• 3:14
  SPEAKER_01: So um that may have something to do.
• 3:17
  SPEAKER_01: We had the ISM manufacturing camp come out, um, which the headline number was solid, but uh prices paid were substantially higher than uh what we're expecting.
• 3:28
  SPEAKER_01: So maybe there's still some pressure on the Fed.
• 3:30
  SPEAKER_01: I've been kind of flagging my concern for you know, entering a rate hiking cycle when you know the economy's on a little weaker footing here, even though you know the rhetoric has been resilient consumer, you know, everything's great.
• 3:45
  SPEAKER_01: The Fed thinks the labor market's very strong.
• 3:49
  SPEAKER_01: I see a little more underlying weakness.
• 3:52
  SPEAKER_01: Um the wage growth out being outpaced by the inflation numbers and uh personal spending is well above uh personal income on a monthly basis.
• 4:03
  SPEAKER_01: So some concern there, but you know, we're very close to all-time highs.
• 4:08
  SPEAKER_01: Um, so it's tough to get too bearish, especially in entering fourth quarter now, which tends to be pretty good.
• 4:14
  SPEAKER_01: But um October historically is a good month, but I think you really have to um you tend to get those gains in the in the last week or two of the month.
• 4:25
  SPEAKER_01: And it's with midterms just around the corner, um, we should see some volatility going into that.
• 4:30
  SPEAKER_01: So we are still at about 425 on the 10 year, um, well off of the lows of the day, um, but pretty close.
• 4:39
  SPEAKER_01: I I think the high inner day um a couple days ago was four above four or five thirty.
• 4:45
  SPEAKER_01: So still very alarming levels, which makes me a little concerned.
• 4:49
  SPEAKER_01: Um, we haven't seen these high interest rates dating back to 2007, I think.
• 4:55
  SPEAKER_01: Um the two years still flagging, you know, another three rate hikes in the next year or so.
• 5:02
  SPEAKER_01: Um, one of the biggest things I'm concerned about.
• 5:05
  SPEAKER_01: So we did get a downtick in crude oil prices today.
• 5:09
  SPEAKER_01: That was the announcement of the G7 saying they're gonna add 100 million barrels of oil and diesel.
• 5:17
  SPEAKER_01: Um, so that did give some relief.
• 5:19
  SPEAKER_01: We're a little off the lows there, just trading about 90 a barrel.
• 5:23
  SPEAKER_01: Um, but as I was starting to say, I'm getting a little concerned about the breakout and high yield spreads.
• 5:30
  SPEAKER_01: Um, that kind of is an indication of a potential default rate.
• 5:35
  SPEAKER_01: So as rates go up, it's gonna put more strain not only on the consumer, especially like buying a house, that kind of thing, but it's also gonna put stress on companies that need to access the lending market.
• 5:47
  SPEAKER_01: Um, which takes us to our first blog post of the week, which is talking about uh demand for mortgages.
• 5:55
  SPEAKER_01: You're starting to see more interest in the floating rate, uh, what they call arms.
• 6:00
  SPEAKER_01: There's a 5-1 arm, 7-1 arm.
• 6:02
  SPEAKER_01: So a 7-1 arm is essentially you lock in a rate that's lower than the current 30-year mortgage, for example, and that's locked in for seven years, but then after that period, it goes to floating rate.
• 6:14
  SPEAKER_01: So you're taking on more risk there if rates keep going up.
• 6:17
  SPEAKER_01: But like I said, we are at the highest level since 2007.
• 6:21
  SPEAKER_01: Um, I am not a mortgage broker.
• 6:22
  SPEAKER_01: Talk to your mortgage broker when buying a house, they'll give you some more insight on that.
• 6:28
  SPEAKER_01: Um, our other blog post was talking about capital gains and losses, uh, the difference between short-term and long-term.
• 6:35
  SPEAKER_01: If you sell, if you sell a security or a mutual fund inside of a taxable account, if you hold it less than 12 months, it is considered a short-term capital gain and will go to your normal income bracket.
• 6:50
  SPEAKER_01: Now, if you hold that longer than 12 months, now you're in uh the brackets down here.
• 6:56
  SPEAKER_01: So you could potentially pay 0%, 15%, or a max of 20%.
• 7:01
  SPEAKER_01: Most people fall into this 15% range for long-term capital gains.
• 7:05
  SPEAKER_01: Um here at HBK, we try to be very mindful on the taxable side.
• 7:10
  SPEAKER_01: Uh, it's not our primary focus, but as a general rule, I try to stay essentially below uh I would say about 2.2% of account value in any given year.
• 7:21
  SPEAKER_01: Now, when we've had such a good run, um, like I did a rebalance a couple weeks ago, and just getting things back into balance in a stock bond portfolio, I mean, I'm already at my tax budget.
• 7:34
  SPEAKER_01: So it makes it a little restrictive.
• 7:36
  SPEAKER_01: You're we're a lot more flexible on the retirement accounts because we we can be without having to consider the tax implications.
• 7:46
  SPEAKER_01: Um, and then it it just our other blog post was talking about, you know, entering retirement.
• 7:52
  SPEAKER_01: You have some different options for um to satisfy your spending needs, but it essentially, you know, focus on your buckets.
• 8:01
  SPEAKER_01: Um, if you have any liquidity needs coming up, make sure it's in a safe vehicle, cash, money market, savings account.
• 8:08
  SPEAKER_01: Um, once you go beyond six months, you can get uh incrementally more risky.
• 8:12
  SPEAKER_01: And then really you have that other bucket um for the longer-term growth to make sure you're you know keeping up with inflation and making sure you don't outlive your money.
• 8:24
  SPEAKER_01: So all very good blog posts.
• 8:26
  SPEAKER_01: Uh, they all go out to our Facebook page.
• 8:28
  SPEAKER_01: Um the social ones go all go out to um social and blog all go out to uh the Facebook page, but the blog posts just go out to our website.
• 8:40
  SPEAKER_01: Um turning to next week, um not, I mean, we take a little bit of relief on the economic data after this strong one.
• 8:47
  SPEAKER_01: The the main highlights will be the FOMC meeting on Wednesday.
• 8:52
  SPEAKER_01: We'll get uh before that, we'll get the ISM or I guess, yeah, ISM services, I believe, on Monday, and then as always, the jobless claims on Thursday.
• 9:04
  SPEAKER_01: So we will be back to talk about all those.
• 9:07
  SPEAKER_01: Um, and we'll be getting to earnings season pretty soon.
• 9:11
  SPEAKER_01: So tune in and we will keep you updated on the markets.
• 9:15
  SPEAKER_01: Um, but I expect some volatility in the weeks ahead.
• 9:18
  SPEAKER_01: So tune in and we'll keep you updated.
• 9:21
  SPEAKER_01: Everyone, take care.
• 9:23
  SPEAKER_00: Security is offered through LPL Financial LLC, member FINRA, and SIPC.org.
• 9:28
  SPEAKER_00: Advisory services offered through LPL Financial LLC, a registered investment advisor.
• 9:34
  SPEAKER_00: Brian Peluso, Michael Kutch, and David Harper are registered representatives of LPL Financial LLC.
• 9:40
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• 9:49
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• 9:56
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• 10:00
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• 10:04
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• 10:06
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• 10:12
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• 10:21
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• 10:26
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• 10:30
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