The S&P 500 added just 0.35 percent last week, but it was enough to establish another record high. The gains came late in the week, first after a deal in Congress to keep the government open for another two weeks, and then following the November jobs report, which showed another healthy gain. And, as has been the case since Thanksgiving, it was the cyclical sectors that led the way, including financials and industrials, although technology stocks did stabilize after falling sharply during the prior week.
The jobs report showed the creation of 228,000 new non-farm jobs, with the unemployment rate stable at 4.1 percent. Such strength reinforces the likelihood that the Fed will raise the overnight rate again when it meets this week, despite evidence that wage pressures remain muted. Average hourly earnings rose by 0.2 percent in the month, considerably better, and more representative of the underlying trend, than the hurricane distorted decline of 0.1 percent in October. But that still left the year-over increase at just 2.5 percent, below the consensus expectation of 2.7 percent and not nearly enough to raise concerns for inflation.
Treasury Yields Rebound; Investors React to Positive Brexit News
The spread between the two and ten-year treasury notes slipped to a new cycle low of just 53 basis points at mid-week. But, similar to the move in stocks, it also rebounded late to close at 58 basis points, virtually unchanged on the week. The two-year note edged higher by two basis points on the week to 1.80 percent, but not before hitting a nine-year high of 1.83 percent on Tuesday. The ten-year note also edged higher by two basis points, to 2.38 percent.
There was also some upbeat news from overseas last week. The United Kingdom and European Union announced the broad terms of a separation agreement, paving the way for discussions about trade. In Japan, third quarter GDP was revised substantially higher. And in China, trade figures in November were considerably stronger than anticipated.
On this week’s economic calendar, consumer prices and retail sales headline the scheduled reports. The headline Consumer Price Index is expected to bump up to 2.2 percent over the trailing twelve months, while the core rate is expected to remain at 1.8 percent. Retail sales are expected to have firmed modestly from the October reading.
This Week: Investors are Watching the Fed, the ECB and Tax Reform
While the Fed is expected to announce another quarter point rate hike on Wednesday, its third of the year, what it says about the future anticipated course of rates will be watched closely, especially given the continued absence of inflation and the changing makeup of the Fed itself.. …read more