Stocks jumped 2% on Friday, erasing losses from earlier in the week after the release of a good employment report. The S&P 500 closed at 2,092, just about where it ended last Friday. Ten year Treasury bonds closed at 2.27%, up a nickel from last week.
On Wednesday Federal Reserve Chair Janet Yellen said “the economy is on the road to recovery,” suggesting the Fed will raise interest rates at its FOMC meeting in mid-December. Yellen also noted how doing so would be “a testament…to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession.”
Right on cue the monthly employment data out Friday revealed a gain of 211,000 new jobs while the unemployment rate held steady at 5%. Revisions showed 35,000 more jobs were added in September and October. It looks all but certain that the Fed will hike rates at the next FOMC meeting on December 16.
On Thursday the ECB dropped its deposit rate to -0.3% (from -0.2%) and extended its QE bond buying another 6 months to March 2017 amidst low inflation in the Eurozone. Nearly 40% of Eurozone government bonds are trading at negative interest rates.
The ECB actions were less than the market expected. Shame, shame, shame, the ECB had not prepared the markets and communicated properly! The euro gained 3% against the dollar right after the ECB decision. Short the euro had become a “crowded trade.” Stocks sold off. Bond yields jumped. The German 10 year bund gained 20 basis points to yield 0.7%.
According to ShopperTrak, a retail analytics company, Black Friday sales at retail stores went down by 10.3% while sales on Thanksgiving slid 10% when compared to the same period last year.
WSJ: Sales on Cyber Monday hit a record $3.07 billion this year, a 16% gain over last year’s total, according to Adobe Systems. Purchases made on mobile devices accounted for $799 million, or 26% of total online sales. Orders made on desktops averaged $128, compared with $102 for those made on smartphones.
ISI reports in their first survey for 2015, Christmas tree sales are up a healthy 10% YoY. Christmas trees are not susceptible to e-commerce!
NYT notes wages perking up. “When UAW contracts were ratified at GM and Ford last week, a ‘New Era’ began in the American auto industry. The deals were the most generous in more than a decade and represented a striking shift from years of cuts and stagnant wages.”
Antiques Road Show. ISI notes that excessive speculation in collectible nonfinancial asset prices are hard to find. “Coin prices are dropping again and antique furniture prices are some 18% below the 2006 peak. Auction prices of classic restored automobiles are down 11% from their 2007 peak. Silver set prices are slipping lower as silver prices fall. Only my brothers stamp collection has held its value. High end art prices, however, are starting to rebound from robust overseas demand. But most collectible prices are down from the 2007 peak.” Often speculation in these assets suggest a bubble and precede a recession. That is not true today.
We had a wonderful Thanksgiving holiday down in Texas. I ate too much as always. I haven’t weighed myself yet – must “be good” for a few more days before braving the scales. Still, one of our investment mantras at APCM applies to staying fit; if you keep the score, you’ll know the score, and the score will improve!
Jeff Pantages, CFA®
Chief Investment Officer