The October jobs report was good. Payrolls are increasing, the unemployment rate is falling, and the labour force participation rate is inching higher.
America is currently experiencing its longest streak of job gains since the 1930s.
This comes as the stock market hits all-time highs.
Tuesday’s election result saw the Republicans take control of Congress. The good news for investors is that the stock market has a long track record of rallying after midterm elections. In fact, the last time the GOP took control of Congress with a Democrat in the White House, we experienced one of the best bull runs in history.
Of course, that’s just history.
Here’s your Monday Scouting Report:
Now That Republicans Control Congress… Now that the midterm elections are behind us, we now have to think about what policies will come through the pipeline. One of the biggest policy issues that could get hot is corporate tax reform.
Here’s Goldman Sachs’ Alec Phillips: “…business tax reform appears the most interesting since many congressional Republicans and the White House agree on some of the basic parameters like keeping corporate tax reform revenue neutral (rather than using it to lower the deficit) and using one-time revenues from taxing previously unrepatriated foreign profits as part of the transition to a new tax system to finance infrastructure spending. However, there are clearly still important differences, particularly related to taxation of future foreign earnings (Republicans prefer a low or zero tax rate, while the White House proposes an unspecified but higher minimum tax rate) as well as whether corporate tax reform can be dealt with separately from individual tax reform (Republicans have resisted splitting the issues).”
- Initial Jobless Claims (Thurs): Economists estimate the pace of weekly claims climbed to 280,000 from 278,000 a week ago. “Initial claims have been below 300k for two months and continuing claims have been steadily trending lower, suggesting solid improvement in labour market performance,” Nomura economists said.
- Job Openings And Labour Turnover Survey (Thurs): Economists estimate US companies had 4.775 million job openings in September. “Job openings rose in August to 4.8M, driving the ratio of vacancies to unemployed workers up to 0.5 — the highest level since April 2008,” Credit Suisse economists noted. “However, the rate of quits was unchanged, and hiring declined to an 8-month low. Both of these measures of job-turnover remain well below pre-crisis levels. There is evidence that these indicators can provide early indications of wage pressure, but in recent months they have failed to pick up even as slack in the labour market erodes.”
- Monthly Budget Statement (Thurs): Economists estimate the US had a $US114.0 billion budget deficit in October. This would be wider than the $US90.6 billion deficit recorded in October of last year.
- Retail Sales (Fri): Economists estimate sales climbed by 0.2% in October. Excluding autos and gas, sales are estimated to have jumped by 0.5%. “Although consumer confidence rose in October, it was likely offset by weakness in motor vehicle sales and a drop in ‘expectations to make a major purchase within six months,'” said Wells Fargo’s John Silvia, who expects no growth. “Despite our expectation for a flat reading, we see a pickup over the next few months as we enter the holiday shopping season. Lower gasoline prices will likely provide a spending boost to consumers but may take time to show up in the data.”
- Univ. Of Michigan Confidence (Fri): Economists estimate this index of sentiment climbed to 87.5 in November from 86.9 in October. “Consumer expectations have made substantial gains in the past three months as the current conditions index has moderated,” Barclays’ economists said. “We expect that lower prices at the pump, combined with rising stock prices since last month’s survey window, will drive overall sentiment to another post-recession high in November.”
The S&P 500 closed at an all-time high on Friday. Most of Wall Street’s equity strategists are comfortable telling clients that stocks will continue to go much higher from here.
However, fund manager John Hussman isn’t so sanguine.
“[R]ight now, we’ve got stocks valued at a point where we estimate the 10 year prospective return on the S&P 500 will be about 1.6 to 1.7% annualized — talking right now with the S&P 500 at 2032 as of today’s close,” Hussman said in an interview with Peak Prosperity’s Chris Martenson.
Martenson noted that Hussman’s assumptions would imply that the stock market is overvalued by 100%.
“100%, yes,” Hussman said. “I actually think the case is a little bit harsher than that; in fact, quite a bit harsher than that.”
For more insight about the middle market, visit mid-marketpulse.com.