New U.S. jobs numbers, Puerto Rico bonds and Fed chair selection update

On today’s edition of Market Week in Review, Consulting Director Sophie Antal Gilbert and Senior Investment Strategist Paul Eitelman discussed the latest U.S. jobs report, market reaction to news in Puerto Rico and Spain, and the race for the next chair of the U.S. Federal Reserve.

Back-to-back hurricanes lead to job losses in U.S.

Data released from the U.S. Bureau of Labor Statistics today showed that 33,000 jobs were lost in September, Eitelman said—the first monthly drop-off in jobs in seven years. He stressed that while this was undoubtedly a negative outcome, the dip in nonfarm payrolls was a direct result of the damages wrought by Hurricanes Harvey and Irma. On the positive side, the nation’s unemployment rate fell to 4.2%, while year-over-year wage growth ramped up to 2.9%—“very encouraging numbers,” Eitelman remarked.

“Overall, the headline job numbers are still consistent with a solid labor market in the U.S.,” he stated, noting that, in his view, the U.S. is starting to benefit from the stronger growth that’s been observed globally.

Puerto Rico bonds plunge, Catalan independence vote rattles markets in Spain

Shifting to the bond market, Eitelman noted that Puerto Rico and Spanish bonds were shaken by news and events from earlier this week. In Puerto Rico, U.S. President Donald Trump’s comments about potentially wiping out Puerto Rico’s debt sent the U.S. territory’s general obligation bond prices plummeting as investors panicked, Eitelman said. He noted that since then, officials in the Trump administration have backed away from the president’s comments, which in his viewpoint will likely stabilize the market more.

Meanwhile, in Catalonia, the referendum to succeed from the rest of Spain—which was approved Oct. 1 by roughly 90% of voters—rattled both equity and fixed-income markets, Eitelman said. Spain’s IBEX 35 Index fell by roughly 2% mid-week, compared to the previous week, he noted, while Spanish bond yields rose. “Legally, there isn’t a lot of scope for the independence vote to stick,” Eitelman said, “but what markets are focused on is the uncertainty and protests surrounding the vote—and how long that will linger.” In Eitelman and the team of Russell Investments strategists’ viewpoint, the disruptions are likely to be contained, which should allow investors to focus on the fundamentals in the region, which they believe are generally pretty good.

Announcement on next Fed chair expected this month

Turning to the U.S., Eitelman stated that President Trump is expected to announce soon who will lead the U.S. Federal Reserve beginning in February 2018. There appear to be four finalists, Eitelman said: Gary Cohn, current director of the national economic council; Jerome Powell, a current Fed governor; Kevin Warsh, a former Fed governor; and Janet Yellen, the incumbent chair. Yellen’s current term expires Feb. 3.

For investors, the best outcome is probably a continuation of the status quo, with Janet Yellen staying on as chair, Eitelman said—given that historically, she has been committed to low interest rates. In addition, her continued position at the top would mean stability in terms of leadership, he added. Absent Yellen being chosen, Eitelman predicts more of a headwind for investors. “Most of the other candidates—in particular, Kevin Warsh—are more supportive of raising interest rates in a more methodical way, and are a little bit less favorable of quantitative easing,” he explained. Eitelman added that Trump could announce his pick as early as the week of Oct. 16.

Watch the video.