We are still flirting with all-time highs for the major indices, but Friday ended with the S&P 500 and Nasdaq slightly higher and the Dow Jones Industrial Average slightly lower. It was a calm and cool week for the stock market, as the Dow rose 0.1% while the Nasdaq was down 2.7%, the S&P 500 was about 1% lower, and the hard-charging Russell 2000 was off by 2.5% for the week. After November’s big, post-election rise, a bit of a breather or pullback in the stock market is a healthy sign for a market that may have gotten a little bit ahead of itself through the month of November.
Friday’s government jobs report showed 178,000 new non-farm jobs were created in November, and while that was below adjusted expectations of 200,000, the number was still a lot better than October’s dismal 142,000 figure. It was interesting to see the unemployment rate drop to 4.6% from last month’s 4.9%, but even that number raised concerns. It was not that jobs growth created that 4.6% number, but rather that more and more workers are simply dropping out of the workforce altogether.
Fed watchers were quick to note that the November jobs report was still solid enough to merit a Fed rate hike when it meets on December 13th and 14th, so that is one December “wild card” that could have an effect on the stock market. Had we seen a robust and vibrant jobs number above the expected 200,000 on Friday, we probably would have seen the November Rally kick into overdrive. However, the 178,000 new jobs and the drop off in worker participation in the economy makes the Fed’s December decision on interest rates a little more challenging.
The yield on the 10-year Treasury bond was down around 1.8% before the election, and it closed out Friday around the 2.4% level. Oddly enough, the free market has raised rates regardless of what the Fed decides on December 14th. This might be a healthy development to have the Fed finally “behind the curve” for the first time in about eight years. The near-zero interest rate policy might finally become a thing of the past, and perhaps that is why banks and financial stocks have done so well in this post-election rally.
Aside from interest rates rising and Friday’s “so-so” employment number, we did get some very positive economic news earlier in the week. It was a big plus to see third-quarter GDP rise to 3.2%, topping estimates of 3.1% and the previous reading of 2.9%. We also saw consumer confidence come in at 107.1 for November versus expectations of 102.5, and the previous 100.8 level. With GDP looking up and consumers getting more confident, it provides a positive backdrop for the stock market as we head toward the New Year.
This week’s modest pullback sets the Bulls up for a potentially very positive December, and the Santa Claus Rally seems even more likely now that we have had a small pullback in the major indices. Earnings season is behind us, and the big question now is whether we can continue to get positive economic news in the weeks ahead. The comments from the Federal Reserve on December 13-14 will be interesting, and there is no way the Fed will want to “rock the boat.” For this reason, we can probably count on a quarter-point rate hike and some docile comments from the Fed Heads.
So will we see a strong upside lift in the stock market as we head toward 2017? The winds right now seem in favor of the bulls, so we will have to sit back and enjoy the ride. There are a lot of concerns about the ongoing strength in the dollar since that tends to hurt exports and the profits of U.S. multinationals, but the bullish vibe is still in place, and a strong finish to 2016 seems likely. That said, the Gorilla wishes each and all a relaxing weekend. There is supposed to be a big blast of cold across the country, so stay warm. We will be back in action on Monday, so again, have a great weekend!
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