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Where to Now?

Where to now?  Tomorrow October’s BLS labor report is released.  It is largely expected to remain relatively “robust” as it relates to the current recovery.

September’s report was strong across the board; specifically the average hours worked component which rose to a seven year high.  Often times such data suggests greater job gains in the immediate future.

Most of the regional surveys that include a hiring component have remained at a healthy level with some suggesting non-farm payrolls could rise in excess of 300,000.  Consensus is expecting a 235K increase.

While some have championed the drop in the unemployment rate to a multi-year low of 5.9%, I will continue to argue much of this decline from a cycle high rate of 10% is the result of workers leaving the work force.   The labor participation rate (LPR) is expected to remain around multi decade lows of 62.7%.

Some have commented this LPR is the result of changing demographics, I can cite Federal Reserve statistics that suggests this is not the case.

Friday’s data can have a big impact upon expected monetary policy time table, which in turn can influence the immediate direction of stock prices.

Earning season is quickly coming to a close.   Bloomberg reports more than 81% of the 410 S & P 500 companies that have reported results so far this quarter have topped projections; the highest rate is the first quarter of 2010.

There is a strong probability this trend will continue, the result of jobs growth, rising consumer sentiment the result of job and wage growth, the decline in oil prices, and low consumer debt levels suggesting nascent pent up demand.

Commenting upon yesterday’s activity, the Dow was up 0.50% because the election is over.  The NASDAQ was flat.  Some have pondered the historical returns when Congress is controlled by the Republicans and the White House controlled by a Democrats.  According to S & P, the S & P has risen 15.1% in the following year.  However as S & P points out there is only eight years since 1945 that such split has occurred so there is a dearth of data points to use.

What will happen today?

Last night the foreign markets were down.   London was down 0.11%, Paris flat, and Frankfurt down 0.01%.  Japan was down 0.86%and Hang Sang down 0.20%.

The Dow should open nominally lower as the markets attempt to digest all that has occurred in the last 30 days.   The 10-year is up 1/32 to yield 2.35%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.