ECONOMIC AND STOCK MARKET COMMENTARY

The current jobs picture would seem to have something for almost everyone. On point, those looking for further modest growth were cheered by November’s in-line gain of 178,000 positions, which was on par with this year’s average monthly increase of 180,000 jobs. Also, the jobless rate is at a nine-year low of 4.6%, as the outlook is brightening in health care, professional and business services, and construction. Meantime, for those looking for accelerating growth, new layoffs remain near a multi-year low, which should portend job creation going forward. Finally, for those fearful of a rise in inflation—with Treasury note and bond yields now at multi-month highs—wages were off in November; the average workweek was flat; and the laborforce participation rate eased.

Other data are more uniformly positive. Recent weeks, for example, have seen gains in personal income and spending, rising manufacturing and non-manufacturing levels, record home prices, buoyant consumer confidence, and an upward revision in third-quarter GDP growth.

All of this seems consistent with a decent Christmas buying season. To this point, an upbeat Black Friday weekend, both in stores and over the Internet, would appear to have these critical weeks for the giant retail chains and individual merchants off to a winning start.

Meantime, the Federal Reserve is likely to be on board with a tighter monetary policy. Our sense is that interest rates, which were last raised a year ago and may have been hiked again days ago (this report went to press before the December FOMC meeting), could be increased two or three times in 2017, especially if lower taxes and higher infrastructure spending boost aggregate growth and inflation.

The post-election market surge has extended into December. The averages have received a significant upward jolt since the election, helped by the oils, the industrials, and the financials. Some groups, such as the yield-rich utilities, though, have not joined fully in the rally, as certain fixed-income vehicles have provided some competition.

Conclusion: The market continues to trade at or near record levels. But with valuations looking stretched at this juncture, our Asset Allocation Model—which is based on a quantitative analysis that includes a number of economic and monetary factors—is turning more cautious.

Source: Valueline.com