Today we learned that December added 216K jobs. CNN reported it as a “red hot” print. Was it? From mine, the headline number offers us very little. For example, what I want to know is the following (a) where are the jobs are being added (e.g. public vs private sector and what sectors); (b) what are people being paid per hour (is it rising or falling?); (c) are people working longer hours (as part time work doesn’t pay a mortgage); and finally (d) what’s the prevailing trend (as one month’s data doesn’t account for much). The headline number doesn’t provide this detail – therefore we need to dig a little. My quick take – this report is weaker than what the headline suggests.
"Macro / Economy"
Did We Just Pull 2024’s Gains Forward?
Stocks were already partying into the Fed meeting (up ~12% over 6 weeks) – however when Powell provided his December update on monetary policy – he simply turned up the music. Risk was on. So here’s my question – with stocks up an incredible 15% in just 7 weeks – how much of next year’s potential gains have been pulled forward? Is it riskier now to buy stocks than it was a few weeks ago? To be clear, stocks are likely to add to their gains before the year is done – however we are now trading close to 20x next years earnings. That’s not a bargain.
Cautious… But Invested
It’s a brave person who is short the market. Probabilities suggest we are headed higher in the near-term. For example, previous episodes of Fed pausing suggests stocks typically gain. My sentiment today is best described as ‘cautious… but invested’. To that end, one should always be invested to some extent. And whilst it’s always unwise to be completely remiss of the risks — it would be an even greater mistake not to have some exposure to higher quality risk assets and fixed income (at current yields)
Two Reasons the Fed Could Cut Rates
The latest set of economic numbers support a ‘goldilocks’ scenario for stocks. For example, durable goods orders continue to fall (a positive for inflation); and employment remains robust (a positive for growth). The question is what could cause the Fed to cut rates mid next year (given this is what is priced in)? I will offer two reasons… both of which I think are unlikely before June.
For a full list of posts from 2017…