Strong Numbers, weaker support

The S&P fell 1.599% from Monday's close of 1977.80 to 1946.17 as talks of the long awaited "pull back" continued. To many investors, this "mini correction" was welcomed. Whenever there is a price adjustment in the market, it implies that investors are at least somewhat rational and reminds investors of the issues the market faces: economic growth, geopolitical factors, and corporate earnings. Additionally, from a trading perspective, volatility has picked up. The VIX hit an almost 2 month high at 16.71 on Wednesday before normalizing back to 14.55 on Friday's positive job numbers.

As we all know, the greater the volatility, the greater the risk, and the greater the rewards. The view on the street is that volatility will continue to pick up as we move into Q4 and traders closely eye earnings as well as significant Fed “speak” including FOMC minutes next week.

The Fed is in a really interesting spot now that the unemployment rate has moved down to 5.9%. The 248,000 increase in non-farm payroll employment numbers is fundamentally a good thing. Unemployment is at its lowest level since July 2008. However, no numbers can come through the wire without receiving some criticism. Friday's numbers were highly affected by an upward revision from July and August numbers, which the market had already expected would be revised. New job creation numbers of 142,000 did unfortunately miss the 200,000 mark the street was looking for. But, the biggest thorn in the side in this report is wage growth.

Increases in earnings only hit 2%, annually. This is negative as consumer spending is unlikely to increase without a significant jump in earnings growth. This speaks to the new era of corporate America. Corporations have been able to do more (increase Bottom Line earnings) with less employees for the past 3 years. Now that that they have hired some workers, they do not feel the need to increase wages as they understand supply and demand is still in their favor.

Although the unemployment rate might be 5.9%, that is not how it feels in the real economy. Employees still understand that mobility in the labor market is not what it once was and are hesitant to leave. The foundation for the 5.9% unemployment remains troubling as underemployment and labor force participation continues to plague the economy. But, the continuation of unequal wealth distribution is more troubling than anemic growth in income. The US has been playing the same story for the past 4 years, the rich get richer and the 99% get, something less than that. These other factors will weigh in on the Fed's decisions regarding short term changes in interest rates. The 5.9% unemployment can be deceiving to the naked eye, but did not start the market from executing a demand for buy orders. The buy on the dip mentality has continued to support the market the past two weeks of trading.

Until the US can realize that Education is an essential long term investment, public health is a right, and political polarization continue, economic growth will never hit its potential as our competitive advantage weakens. Alan Krueger brought up an interesting point on Bloomberg: proposing that now is an ideal time to implement an increase in the minimum wage. While I agree that an increase in minimum wage could benefit the economy, I think giving businesses incentives to spend in the US by buying real assets such as property, plant, and equipment, would have a more sustainable impact on the economy.