Stocks Continue Higher in First Week of October
- Dow and S&P 500 each increase over 1% this week
- September jobs report disappoints, likely impacted by Harvey & Irma
- Amazon to enter pharmacy business?
The September jobs report released this morning showed a reduction of 33k jobs, although that likely understates the strength in the labor market. It also highlights the difficulty and discrepancy between the various ways the Bureau of Labor Statistics tracks the labor market. The headline number is from surveying almost 150k companies about employment levels. This is the jobs report most followed by Wall Street. However, the BLS also surveys households and those results show the US economy reaching a record number of workers with a total of 154.3 million people working. Wages also looked strong, growing at 2.9%, the largest monthly increase in just over 10 years. Wage growth could provide a nice boost to the economy. For much of the last 10 years, there was so much excess labor supply, that wages barely moved. Now that we’ve seen the unemployment rate under 5% for sometime, it appears wages are starting to increase as companies need to attract and retain employees. Beyond the discrepancies of the two studies, the impacts of Hurricanes Harvey & Irma will likely require the September estimates to be revised in future months. Read More
Pharmacy benefit companies like CVS and Express Scripts sold off today on rumors that Amazon is close to entering the pharmacy business. People have long speculated that Amazon would eventually start selling prescription drugs through the mail. Amazon has the potential to significantly impact the industry. Under Amazon’s current model, it seems patients on regular medication would be the most likely to switch, but as the company continues to work on drone delivery, it could eventually serve sick patients who needs drugs the same day. The fascinating thing about Amazon is how it can disrupt numerous industries. Investors don’t seem to care that Amazon doesn’t make much money. It can compete on price because investors are happy with top line sales growth assuming at some point the company will start making money. Much is discussed about the rivalry between Amazon and Walmart, but the relative profits between the two are shocking. In the last nine months, Walmart made $9.7 billion in net income. In the last 10 *years*, Amazon has only made $6.8 billion. A few weeks back an NYU professor put out a study showing that Walmart paid 46 times more in federal taxes since 2008 than Amazon, $64 billion vs $1.4 billion. The fact that Amazon shareholders don’t seem to care about profits gives it a huge advantage in pricing versus its competitors. Read More
Oil declined this week, decreasing 4.4% to close at $49.31/barrel. The yield on the 10-yr Treasury moved higher, up to 2.36% from 2.33% last week. The average rate on a 30-yr also moved higher, to 3.85% from 3.83% last week.
|10-yr Treasury (∆ in bps)||2.36||4||(8)|