Market News – Week of November 27th, 2017

STOCK PRICES POWER EVEN HIGHER:

Synchronized global growth, an expanding U.S. economy, and strong corporate profit reports seem to be enough to convince stock traders that the rally can continue even further. The S&P 500 closed above 2600 for the first time on Friday. In the beginning of the year, analysts at Bank of America and Deutsche Bank predicted the S&P 500 would end the year between 2300 and 2350.

THANKFUL FOR THESE ECONOMIC DATA POINTS:

This Thanksgiving, we can be thankful for the following positive pieces of data:

The Unemployment Rate is Low: It declined to 4.1% in October. It was 4.8% a year ago, and 10.0% in October 2009.

Unemployment Claims are Low: The amount of new claims for unemployment insurance benefits is near the lowest level in 40 years. The four week moving average is 239,750.

Household Debt Burdens are Near Record Lows: The household debt service ratio was 13.2% in 2007. It is now under 10%, suggesting that overall household cash flow has improved.

Job Openings are Near Record Levels: In September there were 6.09 million job openings, close to the record set in July of 2017.

New Home Sales are Increasing: In September, there were 667,000 new home sales, up from 570,000 in September in 2016, and up from 270,000 in February 2011. September’s sales were the highest since October of 2007.

CORPORATE DEBT:

Relative to U.S. gross domestic product (GDP), corporate debt is at its highest point since the financial crisis. This debt has been largely fueled by low interest rates and economic optimism. Debt of nonfinancial companies has reached $8.7 trillion, about 45% of GDP. It has grown by about $1 trillion in the last two years. This data point in and of itself is not problematic, but corporations will need to keep an eye on their overall debt level, and the assets available to cover the debt, if (when) interest rates rise and/or the economy begins to slow down.

HISTORIC CALM:

Over roughly the last 90 years, the S&P 500 experienced a daily 1% or more rise or fall about 24% of trading days. So far in 2017, that figure is 3% with only seven trading days falling or rising more than 1%. Unless “this time is different” and the markets have hit a new paradigm (we think not), investors need to realize that volatility will very likely rise in the relatively near future.

References:

THANKFUL FOR THESE ECONOMIC DATA POINTS: http://www.calculatedriskblog.com/2017/11/five-economic-reasons-to-be-thankful.html
STOCK PRICES POWER EVEN HIGHER: https://www.wsj.com/articles/the-s-p-500-record-run-no-one-saw-coming-1511519401
CORPORATE DEBT: https://www.cnbc.com/2017/11/20/the-debt-time-bomb-that-keeps-growing-and-now-equals-nearly-half-of-u-s-gdp.html
HISTORIC CALM: https://app.hedgeye.com/insights/63494-this-time-is-different-for-stock-market-volatility-unlikely