Back to Market Commentaries

Weekly Market Review | Oct. 6

08 October 2019

Clint McGarvin, CFA® | Portfolio Manager

Week Ending October 6, 2019

The economic reports over the past week confirm the economy has slowed from the pace of growth in 2018. Labor markets continue to improve, but the growth of new jobs has declined this year. The manufacturing sector has dipped into contraction territory, the services sector was humming along this year, but that seemingly changed in September, and consumer spending, which was the strength of the economy faltered in August. Inflation remains muted, and recent indicators suggest it will remain so over the near term.

The U.S.

The beginning of October has pounded us with market-moving news several times each day, but, luckily, we have had a number of economic and market data to occupy our thoughts over the past week. The reports out last week included information on the health of the labor markets, manufacturing, and services. The most significant report was the nonfarm payrolls number out Friday. The economy created 136,000 jobs in September, and the unemployment rate declined to 3.5%, the lowest reading since December 1969. July and August job gains were revised higher by a total of 45,000, also contributing to the rather upbeat report, the number of unemployed persons declined by 275,000 as some retired or left the labor force in addition to those that found jobs in the month. Job creation in the economy has slowed to 161,000 on average in 2019 from the 223,000 per month pace in 2018, and wage growth slowed to 2.9% year-over-year growth from more than 3% for much of this year.[i] Overall, the nonfarm payroll report was solid; indicating the resiliency of the labor markets overall.

The manufacturing sector has been in a recession for several months, and according to data released by the Institute for Supply Management (ISM), that recession will continue into the fourth quarter. The ISM manufacturing index declined 1.3% to 47.8% in September as new orders, production and employment contracted. [ii]The employment component of the ISM manufacturing index agrees with the nonfarm payroll number, which showed that manufacturing employment declined in September. The ISM services index was also out last week and showed that sector decline 3.8% to 52.6% as new orders plunged in the month. [iii] The September IHS Markit Purchasing Managers’ Index® (PMI)  indicates that the service sector of the economy slowed,[iv] while the IHS manufacturing index accelerated slightly in September as new domestic orders and production increased in the month.[v] However, inflation pressures waned overall; however, in the services sector, several companies noted a decrease in both input prices and prices charged due to falling demand and excess capacity. This story of weakening demand and rising capacity has been playing out in the manufacturing sector for most of this year, which has led to falling prices for manufactured goods. According to the personal consumption expenditures price index (PCEPI) for August, the goods markets, which includes most of the manufacturing sector, has seen prices decline by 0.5% year-over-year and have now declined every month this year, the only source of inflation is in the services sector, and now the underlying source of inflation seems to be falling.[vi] It’s important to note that in the near term, inflation may increase as the effect of the tariffs continue to work their way through the supply chain.

Other reports out last week

Factory orders declined 0.1% in August, which confirms the weakness in the overall manufacturing sector for the last few months.


International markets showed the same trends as in the U.S. The Eurozone services sector activity slowed to 51.6 and the overall level of business activity, manufacturing plus services, declined to 50.1, and recall that 50 denotes the line between expansion, greater than 50, and contraction, below 50.[vii] New orders were the weak spot in September, declining to the lowest level since mid-2013. Conditions in the Chinese manufacturing sector improved in September as new domestic orders rose at a pace that eclipsed the decline in new export orders,[viii] similar to conditions in the U.S. manufacturing sector. The global outlook is still for weak overall economic growth, which limits equity returns due to the uncertainty the weak growth creates.


The U.S. and global economies are slowing partly due to the ongoing trade war between the U.S. and China, and we now have another front on the trade war as the U.S. signaled it would hit the European Union (EU) with $7.5 billion in tariffs. The EU indicated that it would not retaliate against the imposition of these tariffs, as they are not legally able to until January (due to a recent ruling by the World Trade Organization against them), so we will have to stay tuned to find out if these new tariffs escalate the global trade war.[ix] It has been nearly a month since the attack on Saudi oil production, which has moved to the background of news stories. It’s important to note oil prices have declined to levels below where they were before the attacks.

Past performance is no guarantee of future returns.  Performance discussed represents total returns that include income, realized and unrealized gains and losses. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses.
Frontier does not directly use economic data as a part of its investment process.
Information provided herein reflects Frontier’s views as of the date of this newsletter and can change at any time without notice.  Frontier obtained some of the information provided herein from third party sources believed to be reliable, but it is not guaranteed, and Frontier does not warrant or guarantee the accuracy or completeness of such information. The use of such sources does not constitute an endorsement. Frontier’s use of external articles should in no way be considered a validation. The views and opinions of these authors are theirs alone. Reader accesses the links or websites at their own risk. Frontier is not responsible for any adverse outcomes from references provided and cannot guarantee their safety. Frontier does not have a position on the contents of these articles. Frontier does not have an affiliation with any author, company or security noted within.
Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance.  References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries or financial instruments of any kind.  This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, investment or tax advice.
Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision.
In reviewing the performance information presented here, we recommend that you consider both the returns generated and the level of risk that was assumed in generating those results. We believe that performance information cannot be properly assessed without understanding the amount of risk that was taken in delivering that performance. The performance information presented here covers different time periods. We present performance information for short time periods because we understand that clients and potential Investors are interested in this information, however, we recommend against making any investment decisions based on short-term performance information. For any investment products mentioned herein, a complete description of their investment objectives, along with details of the risks and fees involved is contained in their respective prospectus and statement of additional information, which is available on their websites and should be read fully.
It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index.

[i] Bureau of Labor Statistics (2019), The Employment Situation — September 2019. Retrieved from
[ii] Institute for Supply Management (2019), September 2019 Manufacturing ISM® Report on Business®. Retrieved from
[iii] Institute for Supply Management (2019), September 2019 Manufacturing ISM® Report on Business®. Retrieved from
[iv] Markit Economics (2019), IHS MARKIT US SERVICES PMI™. Retrieved from
[v] Markit Economics (2019) IHS Markit U.S. Manufacturing PMI™. Retrieved from
[vi] Bureau of Economic Analysis (2019) Personal Income and Outlays, August 2019. Retrieved from
[vii] Markit Economics (2019) PMI by IHS Markit. Retrieved from
[viii] Caixin Purchasing Managers’ Index™ (2019), Caixin China General Manufacturing PMI™. Retrieved from
[ix] Markets Insider (2019) The EU Signaled It Won’t Retaliate After Trump Said He’d Slap Europe with $7.5 Billion In Tariffs. Retrieved from

Market Commentaries

Emerging Markets, Today's Markets, U.S. Markets