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Week in Review

Week Ending: Friday, December 8, 2017

Recap & Commentary

Like so many prior weeks, the S&P 500 closed on Friday at a new record high.  A stronger than expected unemployment report and Congress’ decision to punt a budget decision to Dec. 22, via a two-week spending bill, helped lift markets.

Bitcoin seemed to dominate the headlines as the cryptocurrency's meteoric rise continued. Reflecting this was news that Coinbase, which allows individuals to purchase Bitcoin, has become the most downloaded app on Apple’s iTunes.

If there were any lingering doubts about whether or not the Fed would raise rates at the conclusion of its December meeting, Friday’s employment report silenced them.  While unemployment remained steady at 4.1%, non-farm payrolls added 228k jobs, the third best reading of the year.  YTD, non-farm payrolls have added 1.9M new jobs.  Market expectations for a rate hike on the 13th now stand at 100%.

Largely overlooked was a “breakthrough”, according to some, on Brexit negotiations.  The latest stumbling block had involved concerns about the border between Ireland- an EU member- and Northern Ireland, which is part of the UK.  Having reached a compromise on that issues and others, including the rights of British citizens in the EU and vice versa, along with Britain’s future financial obligations to the UE, the European Commissions recommended moving on to the next phase of talks.  Those may prove to be even more difficult as they will revolve around trade agreements.

Economic Bullet Points

The Factory Orders report declined, though still beat expectations, to close out what has been a mixed October for manufacturing. Core capital goods orders and shipments were revised higher, offering a positive indication of business investment ahead. Overall the report is very solid and points to rising contribution from the factory sector in the last quarter.

Data outside of the factory sector cooled a bit in the month of November, the ISM Non-Manufacturing Index saw a welcome pullback from October’s very high levels but remains solid. Export orders eased, consistent with the International Trade report where net exports fell back, widening the trade deficit more than expected. While the latter is not favorable for fourth-quarter GDP, it doesn’t derail what is still mostly solid economic results.

The labor market continues to grow and absorb a very slim pool of available labor. Nonfarm payrolls rose above expectations, adding 228K jobs in November. The unemployment rate remained at a 17-year low of 4.1%. Wage inflation is still just modest, the Y/Y rate at 2.5%. As far as fourth-quarter outlook, this Employment Situation report points to strong year-end momentum. Jobless Claims were below expectations, also indicating a very healthy labor market. 

The consumer is optimistic, though Consumer Sentiment edged back slightly from last month, and was down from October’s expansion peak of 100.7. Reduced expectations accounted for most of the drop, while the current conditions component posted a strong gain. Consumer Credit rose ahead of expectations, revolving credit saw its largest monthly gain in over a year, a positive for retailers this holiday season.

Of Note

  • According to Bloomberg, if the S&P 500 produces a positive return in December 2017 will mark the first time in which the index has generated positive returns for every single calendar month of the year. Historically December has been one of the better months for the S&P 500.  Since 1928, the index has recorded gains in 65 out of 89 years, or 73% of the time, with an average gain of 1.4%.

Market Indices Week of 12/08

S&P 500                     0.4%

Russell 2000             -1.0%

MSCI EAFE                 0.1%

MSCI EM                   -0.5%

Commodities           -2.9%

Barclay’s Agg.            0.0%

US Dollar Index           1.1%

10-Yr Yield                 2.38%

Oil ($/bl)                         $57

Gold ($/oz)                 $1,251

The Week Ahead

  • NFIB Small Bus. Optimism
  • Business Inventories
  • Empire State Mfg. Survey
  • Industrial Production
  • Producer Price Index
  • Consumer Price Index
  • Retail Sales
  • Jobless Claims

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