After Weak Jobs Data, Attention Turns To Big Bank Earnings (2024)

Earnings season gets underway this coming week after the U.S. jobs machine took a hurricane-induced hiatus in September. Though the payrolls data disappointed, big bank earnings and consumer spending data could shift investors’ focus pretty quickly in the days ahead.

Looking back at the jobs report for a moment, September’s loss of 33,000 positions was the exception to a long stretch of positive employment growth going back all the way to the Great Recession of 2007-2009. It’s likely to be dismissed for the most part as simply a storm-related hiccup, but stocks initially descended after the numbers hit. Before September’s washout, average monthly job gains had been around 170,000 over the previous 12 months, which economists say is above the level needed to signal economic growth.

There’s no way to predict what might come next from a jobs standpoint, but history does offer a hint. After Hurricane Katrina devastated New Orleans in August 2005, the following month saw job losses but the months after that experienced a firm rebound (see below). The past certainly isn’t precedent, but we’ll see what the coming monthly jobs reports bring after the damage gets cleaned up in Texas and Florida.

Wage growth also became a discussion topic Friday as the jobs report showed a 2.9% year-over-year hourly pay jump in September. A few prognosticators surmised that this surprisingly positive data might play into the Fed’s interest rate calculations. While it’s never a good idea to rule out wage growth’s potential contribution to inflation, the September number should be taken in context, as it reflected the loss of a lot of low-wage jobs at food and drinking establishments. Should those jobs rebound in coming months, the overall 0.5% wage growth in September might end up being a false alarm. We’ll watch the October report closely for any hints on the wage front.

Still, the pay gains came amid some hawkish talk from Fed officials over the last few days, helping further cement impressions that another rate hike is likely before year-end. Kansas City Fed President Esther George said Thursday that interest rates will need to be raised, and Dallas Fed President Robert Kaplan warned Friday of a “tightening” labor market, media reports said.

As of midday Friday, odds of a rate hike by December stood at a hefty 92%, according to CME Group Fed funds futures. The weak jobs report didn’t seem to have much effect on this metric. That could be another sign, perhaps, that investors see the report as a snapshot of one month affected by fierce hurricanes and not as the sign of economic weakness to come.

Another sign that investors might see the report as a one-off came from the bond market, where yields didn’t stumble early Friday despite the data. By midday, 10-year Treasury yields stood at 2.36%, and it’s partially the recent big rally in yields that’s helped the financial sector double the gains of the broader market over the past month. As the big banks prepare to report in the coming days, financial stocks as a whole are sending bullish signals.

The big bank-reporting season kicks off with Citigroup and JPMorgan Chase before market open this coming Thursday. Bank of America and Wells Fargo unveil their results before the market opens on Friday. Wall Street analysts have said they expect positive earnings growth from the major banks, with consensus estimates calling for growth that ranges from low to high-single digits.

Data this coming week, like the September jobs report, could reflect the hurricane’s wrath. Notably, Friday’s September retail sales report might be watched for any signs of weakness due in part to those job losses in the storm-ravaged areas. Retail sales were floundering even before the storms, moving lower in three of the last five months. However, higher gas prices and strong automobile sales in September could help reverse that trend. Over time, it’s important to watch retail sales for any sign of re-building after the storms.

Inflation data also hits the wires in the coming days, with the September producer price index on Thursday and the September consumer price index on Friday. Watch CPI to see if there’s any follow-through from the better-than-expected 1.9% year-over-year growth in August CPI, a number that at the time had some analysts speculating about a possible improved inflation picture. The Fed’s goal is 2%, but the inflation indicator the Fed reportedly watches most closely — the Personal Consumption Expenditures price index — hasn’t kept up with CPI lately.

Another thing to watch over the next few days is the oil market. U.S. front-month crude oil futures fell back below $50 a barrel by midday Friday after investors heard mixed messages as to whether Russia would stick with the current OPEC production-curbing agreement.

Meanwhile, there isn’t much expectation of any near-term volatility in the stock market, judging from the VIX volatility indicator. VIX fell to a record low close on Thursday before bouncing back a little on Friday morning. But it still traded below 10, a historically low level.

Dollar Back in Vogue? After losing about 12% of its value since the start of 2017, the U.S. Dollar Index, a measure of the value of the U.S. currency versus a basket of major currencies, has made a bit of a resurgence lately, rallying 3% since early September. The upturn is due in part to increased expectations of a rate hike in the Fed funds rate. Perhaps as importantly, the possibility of a wind-down in the Fed's balance sheet could lift the back end of the rate curve, thereby making U.S. denominated assets more attractive to foreign buyers.

International Markets Also Rallying: It’s not just U.S. stocks on the rise. European and Asian stocks are also posting robust gains. Japan’s Nikkei index posted its best close since August 2015 on Thursday, and The Stoxx Europe 600 rose for nine straight trading days through Tuesday, the longest winning streak it’s had in more than two years. For the year, the Stoxx 600 is up just over 8%, compared to about a 14% gain for the S&P 500 (SPX). The Nikkei has also risen about 8% since Jan. 1, so it, too, trails the SPX.

Hurricane Impact on Jobs - Historic Perspective: Every natural disaster affects the economy differently, so comparing the impact of Hurricanes Harvey and Irma to that of Hurricane Katrina in 2005 may or may not be useful. Even so, it’s interesting to look back more than a decade ago and check how job growth was affected in the aftermath of Hurricane Katrina’s disastrous landfall and think about whether there could be any similar implications for the current jobs picture. In one respect, there’s already a similarity: Jobs fell in September 2005 and in September 2017, both times immediately after hurricanes and both times by similar amounts. Here’s how it played out back then:

Before Katrina hit Louisiana in late August 2005, job growth was rolling along, with gains averaging 196,000 the first eight months of that year. The hurricane blew things apart, and jobs declined 35,000 in September and climbed just 56,000 in October. The Department of Labor specified that some of the weakness reflected inability to get data from hurricane-impacted regions. Jobs bounced back after that for the most part, though unemployment among hurricane evacuees remained high. Other than one hitch in December, job gains totaled 190,000 or more every month from November through March, and the construction industry had some good months as far as jobs added. We can only wait and see there’s a repeat this time.

TD Ameritrade® commentary for educational purposes only.Member SIPC.