Don’t blink now, potentially wild week ahead

Without question the headline economic news of this week and last week, and the news that will continue to resonate into year-end for investors, was the November Employment Report. It was the last employment report of 2019.

The U.S. economy added 266,000 jobs in November. Econoday consensus was calling for a gain of 180,000. The unemployment rate dropped to 3.5%, equaling a half-century low for the US workforce. Econoday consensus was calling for the unemployment rate to remain at 3.6%. The Employment Reports for September and October were both also revised higher as well. September’s monthly job gains were raised by 13,000 to 193,000 and October’s gains were raised by 28,000 to 156,000.

Part of what made the Employment Report so impactful for investors was the fact that the ADP National Employment Report, released mid-week, reflected a rather tepid employment picture. The report reflected a gain of only 67,000 – well below Econoday consensus that had been calling for a private payroll gain of 156,000 in November. That less than impressive release, at least to a degree, set expectations for the November Employment Report relatively low.

The November Employment Report’s topline gains and revisions certainly had a significant impact on markets Friday, but an argument could be made that the internals of the report were nearly as impactful. Of particular note, manufacturing on a M/M basis saw a massive uptick in job gains adding 54,000. That was the single largest monthly gain in manufacturing employment since 1998. Econoday consensus had been 15,000. Healthcare, leisure, and hospitality all added 45,000 jobs. Private payrolls gained a stunning 254,000 in the month. Even average hourly earnings reflected healthy gains – particularly given the revision to October’s results from 0.2% to 0.4%. A record number of Americans are working as of the last employment report of 158,593,000 – a sixth consecutive record high.

There were other economic releases of note last week that provided a constructive underpinning for markets. International trade figures for October ($-47.2 B) were better than expected and well below September’s revised $-51.1 B.

Weekly jobless claims were below consensus as well. For the week ending 11/30, claims were 203 K versus the previous week’s 213 K. It is hardly a surprise to see that consumer sentiment for December (p), as measured by the University of Michigan’s Consumer Survey, came in at 99.2 – well above Econoday consensus of 96.9.

This week’s economic calendar is full of critically important data. CPI for November is released Tuesday morning by the Bureau of Labor Statistics. Econoday consensus M/M is 0.2% versus October’s 0.4%. Y/Y consensus is 2%. CPI less food and energy consensus is 2.3%. On Tuesday the FOMC meeting begins. It concludes on Wednesday – as is customary. Markets are not expecting any move on rates at this meeting – as previously suggested by Chair Powell. PPI-FD for November is released Thursday morning. M/M results are expected to be 0.2%, Y/Y 1.2%.

Retail sales for November are released Friday morning. Given the time of year, the strength of the consumer spending in recent reports, full employment, cycle high readings of consumer sentiment and confidence, it would be reasonable to expect these retail sales figures to be very strong. Econoday consensus for November M/M is 0.5%, less autos M/M, it’s 0.4%.

Given the better than expected economic data we have been treated to over the past four weeks, better than expected corporate results in the form of Q3 results, and the correspondent move higher in equity prices, the question for investors is, where do we go from here? If Friday’s price action is any indication – higher.

That said, there is a great deal on tap this week that could well deliver on some near term volatility. Monetary policy decisions are due out from not only the Federal Reserve but also the ECB. UK elections are on deck – the resolution of which could finally pave the path forward for Brexit.

On Friday U.S. equity markets posted solid gains. The Nasdaq Composite rose 1.00% on the session while the S&P 500 gained 0.91% and the Dow Industrials added 1.22%. Volume on the NYSE rose 8.26% while volume on the Nasdaq slipped 1.81%. The outperformance by the Dow Industrials was in large part fueled by the strength of Apple and Nike as well as Chevron and Exxon Mobil. We are set up for a continuation of the move higher that framed last week’s close. We open today with the current outlook for US equities still in a “Confirmed Uptrend.”

Bond yields have slowly reverted to a healthier curve in recent weeks – indicating that markets are increasingly regaining confidence in the health of the broader U.S. economic landscape and the prospects for continued expansion.

Term Yield

US 3M 1.523%

US 5Y 1.668%

US 10Y 1.843%

US 30Y 2.285%

(Courtesy: Reuters Markets)

Flickr photo: by Riccardo Maria Mantero
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