This was the biggest single month of job gains since January 2012. It was also the 50th straight month of job gains. Impressively, all major industries saw gains.
Things are good in the US. Employment is improving and inflation is low.
All eyes will be on the retail sales report this week. Economists expect low gas prices to appear as a big plus in this report. The numbers will also offer some clarity regarding Black Friday sales. Most folks understand that Black Friday stats reveal little about the health of the consumer or the retail business. Still, the retail sales report may offer additional colour regarding why sales were unusually disappointing this year.
Here’s your Monday Scouting Report:
Let’s Keep Talking About Oil. Oil continues to be the big market story at the moment. For the US, low prices are great for the consumer, but bad for the US energy companies, which have been hiring and spending like crazy in recent years. These competing forces have made it somewhat confusing for the US investor.
Charles Schwab’s Liz Ann Sonders sums up the whole US story in three sentences: “Consumer spending represents 68% of the US economy. Oil and gas capex represents about 1% of US GDP and less than 9% of US total capex (which in turn represents about 12% of US GDP). Therefore, the benefit of lower energy prices to the consumer and many businesses greatly outweighs the significant hit to energy companies and/or energy-oriented capex, especially in energy-oriented states.”
- JOLTS Job Openings (Tues): Economists expect the Job Openings & Labour Turnover Survey to show there were 4.77 million job openings in October. From Credit Suisse: “Job openings declined in September to 4.7M, but the ratio of vacancies to unemployed workers rose to 0.51 — the highest level since March 2008. Along with the recent rapid declines in the unemployment rate, this report confirms that the US labour market has effectively recovered to “normal” cyclical conditions. Importantly, the rate of job quits rose sharply in September after stagnating for 11 months. Hiring rates also reversed their recent decline. Labour-turnover indicators can provide early signs of wage pressure and if this pickup is sustained it will add to the evidence that wage acceleration is likely in 2015.”
- Monthly Budget Statement (Wed): Economists estimate the US had a budget deficit of $US65.0 billion in November.
- Retail Sales (Thurs): Economists estimate sales climbed by 0.4% in November. Excluding autos and gas, sales are estimated to have increased by 0.5%. “The key question around November retail sales is whether non-energy spending is responding more noticeably to lower gasoline prices,” Credit Suisse economists said. “The response so far (from the June peak in gas prices through October) has been relatively muted. But gasoline fell below $US3.00 nationwide in mid-November, perhaps a key psychological level. Black Friday reports were negative, but these are often not a good guide to the monthly Census data.”
- Initial Jobless Claims (Thurs): Economists estimate the pace of weekly claims fell to 295,000 from 297,000 a week ago. “We are inclined to dismiss recent reports as the claims data can be even more volatile than usual around the holiday,” UBS’s Kevin Cummins said. “Meanwhile, at 299,000, the four-week average is still low, even if not falling.”
- Producer Price Index (Fri): Economists estimate producer prices in November fell 0.1% month-over-month, or increased by just 1.4% year-over-year. Excluding food and energy, core prices are estimated to have climbed by 0.1% and 1.8%, respectively. “The PPI survey for petroleum products is in the first half of the month, so this month’s report probably won’t pick up a steep further drop in gasoline prices after mid-November,” Morgan Stanley’s Ted Wieseman said. “So we see energy prices falling a relatively modest 0.7%. Farm price figures showed upside in fruits and vegetables but pointed to a pullback in meat after a surge last month and showed weak dairy prices, so we forecast a 0.4% drop in food after a 1.0% gain in October. A partial reversal in the volatile trade services component after a 1.5% jump in October should also weigh on the headline PPI.”
- Univ. Of Michigan Confidence (Fri): Economists estimate this index of sentiment climbed to 89.7 in December from 88.8 in November. “Equity markets have moved modestly higher since the final October reading and gasoline prices have continued to tumble,” Barclays economists noted. “We expect these factors to propel sentiment to another post-recession high.”
More and more strategists argue we should think about stocks as being in a long-term, secular bull market. So rather than obsessing over 12-month targets, investors should consider the likelihood that we’ll see many more years of gains.
This is a position floated by RBC Capital’s Jonathan Golub, Morgan Stanley’s Adam Parker, FundStrat’s Tom Lee, BMO Capital’s Brian Belski, and Charles Schwab’s Liz Ann Sonders. (This contrasts with folks like GMO’s Jeremy Grantham and John Hussman who warn of low or negative returns.)
“Our view, which we have held since the market bottomed in 2009, is that the current bull market is secular, not cyclical,” Sonders said. “Secular bull markets — like from 1949 to 1968 and 1982 to 2000 — are extended bull markets characterised by above-average annualized returns and generally less-dramatic downside risk.”
“Given our view that the market is transitioning toward the second stage of a secular bull market (“acceptance”), we believe US stocks are poised to provide average returns of 8-10% for at least the next three to five years, similar to historical norms,” Belski wrote.
“This does not mean this market is immune to corrections,” Sonders warns very explicitly. Belski similarly warns “corrective phases are not out of the question and some years may be better or worse than the average (or even negative).”
Indeed, Black Monday 1987 — the day the Dow plunged 22% — was right in the middle of the 1982-2000 secular bull.
For more insight about the middle market, visit mid-marketpulse.com.