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U.S Treasury Bonds

December 6, 2019

 

"The transient nature of investments requires diversity of thought and a process that adjusts to the changes in the business cycle”. GNL

Commentary:

Today’s Labor Department jobs report beat estimates by a large margin, coming in at 266,000 new jobs created in November. The unemployment rate dropped to 3.5%, the lowest in fifty years. Equity markets reacted positively on the news despite the impeachment process going on in the Congress. Investors are currently viewing the impeachment process as political; thus, a non-factor for them.

Equity markets continue to advance despite a weak manufacturing report earlier in the week that drove the leading indexes down substantially. A strong manufacturing jobs report today reversed that trend. Strong consumer demand is also driving the equity markets as well. On-line shopping on Black Friday and Cyber Monday set a record.

Brian Wesbury, economist at First Trust Advisors believes strong business-to-business buying helped third quarter Gross Domestic Product (GDP) come in at 2.1%. Wesbury also believes the economy is sustainable for at least another two years before a recession may occur. Recessions happen when GDP becomes negative. Current trade discussions are not "trade wars" according to Wesbury like those in the 1930’s that exacerbated the recession/depression.

Trade discussions with China are improving, which is also helping equities today. The December 15 deadline for additional tariffs on Chinese imports seems to be impacting negotiations. Markets may continue to be volatile next week as the deadline approaches. The so-called Phase One deal may be coming to fruition. We shall see.

Bond yields are rising on the good economic news, thus driving bond prices down. This should soon abate as the Federal Reserve Board is not expected to lower interest rates at their December meeting. Also, investors selling bonds (to free up money for equity investments) will cause bond prices to drop as well. Bond markets appear otherwise stable going into the New Year.

Perhaps this year, unlike last, there will be a Santa Claus rally to lighten the holiday spirit.

Best Regards,

George N. Luciani CFP®

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