What A Job’s Report!!

By: Kent Engelke | Capitol Securities

Wow!  The December job’s report was extremely strong in every dimension suggesting that the economy is on solid footing.  This correlates to an economy expanding with a “fourth handle” thus alleviating concerns that the economy is on the verge of a recession.  As noted last week there is a massive disconnect between the headlines and economic forecasts.  Will this data stem the endless negative economic diatribes?

Non-farm and private-sector private payrolls rose by over 300,000, far eclipsing estimates of a 180,000 increase.  November’s job’s growth was also revised higher thus suggesting further strength. Bloomberg writes 22 of the last 24 month’s job growth was revised higher than previously estimated.

Wage growth also topped expectations, matching the fastest pace since 2009.

Meanwhile, the jobless rate rose to 3.9%, the result of more workers reentering the workforce. Accordingly, the labor participation rate rose to 63.1% matching the previous peak of March 2017 and the highest since March 2014.  When the economy exited the great recession in 2Q09 the LPR was 65.7%.

In my view, a rising LPR and wages is pivotal in sustaining economic momentum.

Some pundits are suggesting there will be revisions.  I would agree with this statement but barring a massive change, there is little to suggest the data was nothing but extremely strong.

Equities responded positively to the data adding to the optimistic sentiment, the result of trade hopes.

Gains accelerated following soothing comments by FRB Chair Powell that Fed policy is flexible, “listening carefully” to the financial markets pledging to be patient with any future interest rate hikes.  This was interpreted as laying the potential groundwork for a pause in the Fed’s campaign of gradual rate hikes.

As with all prior sessions, activity was dominated by algorithmic trading. 

What will happen this week?  Fourth quarter earnings season commences shortly.  The consensus is expecting profits to increase by 8%.  I think it can be safely written that expectations are low.

What is frightening, however, according to Bloomberg the most widely owned momentum growth companies are expected to post earnings growth in the range of 0% to 5%.  The companies as an aggregate are still priced over 30x earnings.  Against this simplistic backdrop, any price gains in this sector/companies could be difficult.

Last night the foreign markets were mixed.  London was down 0.49%, Paris was down 0.50% and Frankfurt was down 0.45%.  China was up 1.71%, Japan was up 2.44% and Hang Sang was up 0.82%.

The Dow should open flat.  The 10-year is up 7/32 to yield 2.65%.