It was a half-day session on Friday, but what a great way to close out the week with the Dow, Nasdaq, S&P 500 all hitting all-time highs on Friday. The post-election rally has added 5% to the Dow, and about 4% to both the Nasdaq and S&P 500. The closing bell on Wall Street was attended by none other than Santa Claus, escorted by U.S. Marines, who work on the “Toys For Tots” program. Santa even gave the gavel “close” to finish what was yet another impressive and encouraging day for the bulls.
We may be seeing the yield on the 10-year Treasury rise to around the 2.4% level, but it does not seem to be deterring the stock market at all. If anything, it makes a quarter-point rate hike from the Federal Reserve next month seem like not such a big deal. Many economists and strategists have argued for years that rates needed to get back to more “normal” interest rate levels, and with no “official” Fed rate hikes, the longer-bond market is “normalizing” itself. Some Fed watchers are saying that the Fed is “behind the curve,” but the stock market is liking what it is seeing, and that is a plus for the bulls.
The other post-election development is the soaring strength of the U.S. dollar is now at its highest level since 2003. This is great for the dollar, U.S. travelers and buyers of imported goods, but it also can eventually hit the earnings of U.S. Multinationals, so we will see how this recent surge plays out in the days, weeks and months ahead. A strong dollar also tends to pressure commodity prices, and we are seeing that development across the globe right now. Oil was down nearly 4% on Friday to around $46 per barrel, and many other commodities have taken a bit of a hit.
The one concern about the Fed’s “layup” for a December rate hike, is not so much how it would affect the economy, but rather how it would affect investors. We are a long way away from last December when the Fed’s quarter-point hike led to a 10% slide in the S&P 500, but the idea a year ago was that a quarter point hike would not be all that big of a deal. If we were to see strong economic numbers in the U.S. and earnings worries surrounding the ongoing strength in the dollar, then we MIGHT see the market throw what Alan Greenspan referred to as a “tantrum.”
We will wait to see what the Fed DOES in mid-December, as well as wait to hear what it has to SAY at its next meeting. It will clearly not come out hawkish on rates, so its words will carry a lot of weight as to how the financial markets react. Janet Yellen is on board as Fed Head until January 2017, and for all of the anti-Fed rhetoric from Donald Trump during the campaign, him replacing her or her resigning seems extremely unlikely, especially when we are seeing such a bump up in the stock market.
Consumer confidence is on the docket for next Tuesday, and economists are looking for a 101.8 reading for November versus the previous 98.6. If consumers are happy, and the stock market is happy, then maybe the Fed might even skip a rate hike in order to not rock the apple cart. Also out Tuesday is revised third quarter GDP, which is expected to rise to 3.1% from the previous 2.9%. A strong GDP number would give a stamp of approval to the big November rally we have seen, so we will wait and see what sort of number we get next week.
Next Friday we get the government jobs report, and while it has been sketchy in recent months to say the least, economists are looking for 180,000 new jobs for November versus September’s measly 161,000. The unemployment rate is expected to remain flat at 4.9%. The employment picture made it difficult for a Fed rate hike all year, and the election process did so as well. So again, the odds do favor a Fed rate hike especially if the November jobs report shows a strong domestic employment picture in the U.S.
That said, let’s hope Santa and his rally are on the way as we head into December and the New Year. The Gorilla wishes each and all a relaxing and restful holiday weekend. Enjoy your friends, family and a ton of football games. We will be back in action on Monday, and a Happy Holiday weekend to all!
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