STRONG JOBS REPORT REVIVES THE MARKETS: After a very solid U.S. jobs report (see below), markets jumped on Friday, turning a negative week into a positive one. Up until Friday our old friend, U.S./China trade relations, reared its ugly head and sent markets sideways to negative for most of the week. The jobs report provided further support for the premise that a recession is not imminent. It will also likely influence the Federal Reserve to keep interest rates alone for awhile. The Fed meets again next week.
NOVEMBER JOBS REPORT: The U.S. economy added 266,000 new jobs in November and the unemployment rate ticked down from 3.6% to 3.5% (a fifty-year low). Over the last twelve months the record streak of positive months has continued, and a total of 2.204 million jobs have been added to the economy. Seasonal jobs helped this report as did the end of the auto workers’ strike. Average hourly earnings are 3.1% higher than one year ago.
ENCOURAGING TRENDS FOR THOSE IN THE PRIME WORKING YEARS: For Americans in the 25-54 year old category, the so-called prime working years, the labor force participation rate and the employment-to-population ratio has trended positive for a number of years. The employment-to-population ratio has been trending upwards since 2012. The labor force participation rate has been moving upward for three or four years after a nearly 20-year downward trend.
…AND YET U.S. INVESTORS ARE PULLING MONEY OUT OF THE STOCK MARKET: The S&P 500 is having a great year so far. As one investment advisor among many, I can tell you I do not see a lot of euphoria, and the overall behavior of investors indicates that investors are leery of the stock market. So far this year, investors have taken $135.5 billion more out of U.S. stock-focused mutual funds and exchange traded funds than they have put in. That is the largest amount of withdrawals for at least twenty years. Clearly, U.S./China volatility has scared many investors away as has news of tepid earnings growth of U.S. companies. It also shows that, unlike in other rallies, investors are not chasing the market’s strong performance. Hundreds of billions of dollars have moved into bonds and money-market funds. The good news is that when there is a lot of money out of the market, there is plenty of fuel for additional rallies if positive signs emerge (e.g., U.S./China trade deal, global growth, etc.).