Unemployment Hits 50-Year Low, Suggests Healthy Q4 Economy

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If you’ve been paying any attention, you’d know that the U.S. economy is going to hell in a handbasket. The recent stock rally ran out of steam, we’re still at war with China, and stateside manufacturing is in the toilet.

To make matters worse, investors just found out that unemployment is now at a 50-year low.

Wait, what?

That’s right – this morning’s jobs report revealed that the U.S. economy added 136,000 payrolls in September, bringing unemployment down to 3.5%. That’s the lowest it’s been since 1969.

Better yet, the “real” unemployment rate – which factors in Americans that are out of the workforce or underemployed – fell 0.3% to 6.9%. The last time we saw a figure that low was in December 2000, almost 19 years ago.

Unsurprisingly, stocks rebounded on the news. The Dow shot 200 points higher soon after the market opened, while the S&P 500 rose by 0.8%.

Tech saw the most significant morning gains, climbing 0.9% with the help of Apple’s (NASDAQ: AAPL) 1.9% surge.

Treasury yields spiked as well. The 10-year rate hit 1.55% at 9:31 am EST before retracing to 1.52% a little over an hour later.

And even though wage growth fell short of analyst expectations (up 2.9%), the Bureau of Labor Statistics may have given investors just what they needed to feel good about Q4.

“This sounds like a Goldilocks number to me,” said Steve Grasso, director of institutional sales at Stuart Frankel, on CNBC’s Squawk Box.

“It still gives the Fed some room for cover to cut rates. This is as close to a not-too-hot, not-too-cold greeting for the market.”

Had the jobs report been too good, Fed Chairman Jerome Powell may have been gun-shy to authorize another rate reduction – something that the market assumes is coming later this month.

Without one, equities would likely falter heading into November.

Some analysts, however, aren’t convinced that today’s labor statistics are enough to support another rally.

“Today’s data don’t change the fundamental economic picture,” said Eric Winograd, AllianceBernstein’s senior U.S. economist.

“The labor market is still strong, adding more than enough jobs each month to absorb new entrants to the labor force. But even with a strong labor market, wage growth remains muted, limiting the risk that labor market tightness will push inflation meaningfully higher. The question that matters most for the economy is how long the labor market can stay strong, given the ongoing slowdown in growth.”

And though Winograd’s statement certainly makes sense, it’s something that analysts have been saying since late 2018 – that a contraction is coming, and it’ll eventually show up in the jobs report.

Well, it’s been one year since stocks cratered in 2018, and the U.S. has yet to enter any sort of recession. More importantly, Americans are gainfully employed at historic levels.

Yes, companies have revised their Q3 and Q4 expectations – something that bearish analysts love to point out – but until people start losing their jobs, the economy seems intent on ticking along.

We’ll find out the truth in early November, when October’s jobs data is released.  It’ll come out right around the same time that corporate earnings hit their stride, making the first few weeks of the month a potential turning point for equities.

If unemployment stays low and earnings (including guidance) look good, new market highs in Q4 seem inevitable. But if unemployment rises and revenues drop, we could be in for a very rocky end to the year, possibly stretching into 2020.

And if there’s one thing that the market does not need right now, it’s a heavy dose of pessimism heading into an election year. Especially one that features Elizabeth Warren as the Democratic nominee – a woman that has Wall Street quaking in its Italian leather boots.

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