ECONOMIC AND STOCK MARKET COMMENTARY

The jobs picture continues to brighten. The improvement is not coming in dramatic fashion, to be sure, but it is evolving in a stable enough way to suggest that the long business upturn will remain on track. As to the latest report, October saw the nation add 161,000 jobs—or just below the average monthly increase so far this year. Also, job gains for August and September were revised upward; average hourly wages again rose strongly; and the unemployment rate dipped below 5.0% — leaving it at less than half what it was at the trough of the 2007-2009 recession.

Most of the fundamentals are still rather sound. Key reports, for example, detail an expansion that is proceeding in an orderly manner, with modest increases in manufacturing, non-manufacturing, personal income, and consumer spending. We also are seeing a narrowing of our trade gap, a jump in U.S. worker productivity, and a restocking of inventories after five quarters in which draw downs had subtracted from GDP. In all . . .

This year is likely to go down as a tale of two halves, with negligible growth in the first two quarters, in part because of the inventory reductions, followed by a solid upturn over the summer, with GDP rising 2.9% in the third quarter and beating forecasts. Now, with a largely healthy backdrop in place, and with some presumptive inventory restocking on the way, the economy could well prove resilient enough for growth to again top 2% in the current three-month span. We think GDP gains then will hold in this comfortable range in 2017, assuming there are no dramatic changes on the fiscal or monetary side, as a result of the election. In the meantime …

The Federal Reserve could well be poised to raise interest rates next month, after months of putting such tightening efforts on hold. Now, with the election in the books and the economy seemingly on the mend, the case for a rate hike is probably building, assuming that a degree of stability persists in the financial markets— an outcome that is hardly etched in stone.

Meanwhile, the stock market regained its equilibrium following the Presidential vote, after it had declined steadily in the two weeks leading up to the election.

Conclusion: Prospects for equities are still decent—especially if investors can again focus on the fundamentals.

Source:  Valueline.com