Many economy watchers may have been remembering (and humming) the old Beatles song, “All You Need Is Love,” as Friday morning’s employment data approached. The employment picture has lagged over much of the six-year recovery, so the song the bulls may have been singing yesterday was more like “All You Need Is Jobs,” sung to the same music of the Beatles classic. Well, we needed those jobs, and that was exactly what the report showed. The government reported that 321,000 new jobs were created in November, which handily topped the 235,000 that economists were expecting.
The stock market was off to the races following the government jobs report, and we saw the S&P 500 and the Dow hit all-time highs in early trading on Friday. The buzz and excitement about the Dow possibly even hitting and closing above 18,000 was on investors’ minds in a big way. A late-day sluggishness kicked in Friday afternoon, however, and that left the major indices only marginally higher for the day and the week. It was still a great week for the bulls, though, and the wild-eyed notion of a possible Dow 18,000 caught many by surprise.
Stock market news has been nonexistent in the mainstream media, and because each new high has been marked by small and quiet gains, even the financial media does not seem all that excited. Outside of late October’s rally, the broader market gains we have witnessed in November and early December have been fairly quiet and have not been headline news. We have yet to see those 100-point breakouts to new highs on huge volume for the Dow, which has kept the coverage fairly subdued. Maybe a close above 18,000 for the Dow next week will get some attention, but for the time being, the all-time highs keep occurring without much fanfare.
Most bulls agree that “slow and steady” wins the race, and most are happy with these daily gains as the stock market grinds ever higher. We all know that runaway highs and rampant speculation in individual issues can signal tops in bull markets, but we are just not seeing that sort of atmosphere right now. Holiday parties are getting underway right now, and it will be interesting to see if the stock market or individual stocks even come up as items of conversation. So far, the quietly booming stock market is not on the public’s radar, and oddly enough, many long-term bulls think this development is, as you would guess, bullish.
That is not to say the bullish view will work indefinitely. There are many curve balls that can appear in an instant. The case in point was the strong jobs report we saw on Friday. Employment has remained under a lot of stress for years, so seeing the highest monthly jobs creation since January of 2012, suddenly caused concerns. Does this mean that the Fed is off the hook, and that it can start raising interest rates sooner rather than later? The Fed seems committed to the mid-2015 period to begin raising interest rates, but a vibrant U.S. economy with big jobs growth suggests that maybe the Fed has more of a green light to raise rates.
If and when the Fed decides to finally raise interest rates after so many years will not likely draw applause from the stock market. The conventional wisdom has been that some sort of inflation would have kicked in by now to force the Fed to raise rates, but deflation is now on the radar of global financial markets. Central banks around the world are keeping rates low and putting the pedal to the metal on QE programs, so maybe that inflationary pressure will still eventually occur. That is not a worry for the time being, though, so we obviously can enjoy accommodative central banks for quite a while.
The inflation scenario and the need for higher rates seems even less likely now that oil prices continue to weaken. Oil prices could become yet another “curve ball” since low oil prices curtail new production, as well as new oil exploration. For an economy so interlinked to oil, falling prices are great until they are not. The current oil price scenario can lead to future shortages, and while that might take years, once supplies and new production diminish enough, there could be future oil price spikes. This becomes one of those potential “global shock” problems that could become more pronounced if oil continues to see price declines, so it is worth keeping on our radars.
But enough for “gloom and doom” about oil and possible rate hikes from the Federal Reserve. We did see all-time highs in the Dow and the S&P 500 on Friday, which was the perfect way to head into the first weekend of December. Economic numbers remain positive for the most part and as long as that picture stays in place, then the ongoing bull market should continue to be an ongoing bull market. The Federal Reserve meets in mid-December, so we will be waiting to hear what it has to say about interest rates and its plans for 2015.
That said, the Gorilla wishes each and all a wonderful and restful weekend, and keep in mind the seasonal bias and the famous Santa Claus Rally that we seem to currently be riding. The S&P 500 is still posting a roughly 12% gain for the year, and that is a big plus that has surprised both Wall Street and Main Street alike this year. We will be back in action on Monday, so again, have a great weekend, and let’s hope we see the Dow top 18,000 early next week.