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Market Insights

Market Insights: November 17, 2014

Market Insights: November 17, 2014

Economic Outlook:  The Job Front in the U.S. Looks Good

  • Last Friday’s Employment Report had a lot of data that confirmed the positive jobs picture in the U.S.
  • On a year-to-date basis, employment has increased 2.7 million. The readings on a year-to-date basis are the best since September 2008.
  • The unemployment rate is down to 5.8%. The four-week-average of initial unemployment claims fell below 280,000. It has not been this low since April of 2000 (that’s not a typo).
  • Average hourly earnings rose 2.0% on a twelve month trailing basis. This is tame enough that there should not yet be any significant pressure on the Federal Reserve to accelerate the pace of interest rate increases.
  • The strong U.S. economy is helping small business as well. In the latest NFIB Survey, the percentage of small businesses with job openings reached almost 25%. You have to go back to early 2008 to find a period with the percentage at this level.
  • The U.S. economy stands out in the global score-keeping at the moment. Clients ask if the U.S. can continue to turn in good growth numbers while the rest of the world is struggling to catch up. We believe the answer is yes.
  • Admittedly, the Euro-zone is indeed struggling. The final GDP number for the second quarter turned out to be +0.2%, higher than the consensus, which was amazingly, only +0.1%. Both numbers are miniscule, but nonetheless in positive territory. Interesting to note: growth of GDP in Greece was greater than France, though both were positive.

Equities Outlook:  Energy vs. Healthcare

  • The S&P 500 Energy sector has risen 4.0% since the mid-term elections, four-times the rate of the S&P 500 as a whole. While the Congressional election results do indeed favor energy, the big rebound is likely more attributable to a belief that oil prices (in the $70’s) are near an interim low and will probably rebound.
  • Healthcare, on the other hand, backed off slightly post-election. This likely reflects that a Republican-controlled congress will be less friendly to decisions affecting the Affordable Care Act.

Fixed Income Markets:  Dollar Strength and Rates

  • The interest rate on the ten-year U.S. Treasury Note ended last week only slightly unchanged at 2.29% on Friday. The previous week’s yield was 2.30%.
  • The strong U.S. economy we discussed above means the U.S. dollar will likely remain strong. The strength of the dollar, while helping consumers with import prices, creates challenges for U.S. exporters. Some Federal Reserve officials have expressed concerns about the strong dollar and it may cause them to go slow in creating additional challenges with higher interest rates.

The Week Ahead

Monday

  • U.S. Industrial Production & Capacity Utilization (Federal Reserve)

Tuesday

  • Producer Price Index (Department of Labor)

Wednesday

  • Housing Starts (Department of Commerce)