Friday morning’s Jobs Report was solid…and came in above expectations. The Bureau of Labor Statistics reported that Total Non-farm Payroll increased by 228,000 in November, easily outperforming the forecast of 184,000.  Importantly, worker pay edged up too. Not as strong as we would like but we fully expect it to improve in months going forward. Fortunately we are not alone in this thinking.

Most economists agree that wage growth is a by-product of a tight labor market. Joshua Shapiro, chief U.S. economist noted: “The NFIB survey sub-component that queries small business owners about their plans in terms of compensation changes provides a decent leading indicator of the ECI private wage and salary measure. The signal being flashed is for accelerating gains in wages & salaries in the months ahead.”

There is another side to this coin though. Wage growth is pretty much a good thing all around, but when it happens too rapidly there is an increased chance of waking the inflation monster that has been hiding under the bed.

The ever-vigilant Fed tries to get ahead of this monster and employs a whack-a-mole strategy – raising interest rates.  So, timing is terribly important: wait too long and the inflation monster will not only awaken but he may get out the door and gather momentum. But, move too quickly and negative forces will dampen the economic expansion – and therefore weaken the financial markets. The negative forces we’re fingering here are the Wall Street bears.

Our friend Brian Wesbury of First Trust Portfolios has some thoughts on all of this. Brian says:

“The Federal Reserve has a problem. At 4.1%, the jobless rate is already well below the 4.6% it thinks unemployment would/could/should average over the long run. We think the unemployment rate should get to 3.5% by the end of 2019 and wouldn’t be shocked if it got that low in 2018, either.

Add in extra economic growth from tax cuts and the Fed will be worried that it is “behind the curve.” As a result, we think the Fed will raise rates three times next year, on top of this year’s three rate hikes, counting the almost certain hike this month. And a fourth rate hike in 2018 is still certainly on the table. By contrast, the futures market is only pricing in one or two rate hikes next year – exactly as it did for 2017. In other words, the futures markets are likely to be wrong for the second year in a row.

And as short-term interest rates head higher, we expect long-term interest rates to head up as well. So, get ready, because the bears will seize on this rising rate environment as one more reason for the bull market in stocks to end.

They’ll be wrong again. The bull market, and the U.S. economy, have further to run. Rising rates won’t kill the recovery or bull market anytime in the near future.”

Happily, our sentiment here at DSWP runs along the same lines as Mr. Wesbury’s thinking.

Market Minute- Futures are Green, Indicators Positive

It’s the kind of morning I like to see. As I write this, International stocks are up (since they are ahead of us in time, the trading day is over or nearly over in parts of the world). European stocks are up, and US Futures (an indication of what markets will look like here in the US later when they open) are also looking green. (Positive indicator) Although this doesn’t give us a certain indicator, it’s most often pretty indicative. Today will most likely open to the upside.   

Also, in looking at various technical indicators, most domestic markets (stocks large and small) are looking positive across short, intermediate and longer-terms. As there has been some consolidation lately in the US, our crystal ball seems to indicate that we will either continue the consolidation through the end of the year (giving us a really good year this year) or perhaps we’ll see a holiday breakout, which will give us an even better end to the year.  

Relax, enjoy your weekend, and get on with your holiday-ing!  

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

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