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Stocks Edge Higher While Bonds Slip on Stronger Economic News

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PantagesThe S&P 500 ended the week up 0.4% to 2,075, another new all-time high. They are up 14.5% year to date.  Bonds lost ground as yields rose to 2.30% on the 10 year Treasury.

Both US stocks and bonds posted gains in November. Check out the table at the bottom of this post for detailed returns of these and other asset class returns across various time periods.

IMF Managing Director Christine Lagarde said that lower oil prices would help boost global economic growth. She stated that although economies dependent on the fortunes of oil exporters could suffer, the plunge in oil prices was a net positive. Sounds right.

The November US unemployment rate out Friday held steady at 5.8%. Payroll employment rose a better-than-expected +321,000 and the prior two months were revised up +44,000. If this trend continues in December we will record the strongest year of job creation in 15 years. Average hourly earnings jumped 0.4% in November; however the y/y gain is barely up to 2.1%. This was a very good report.

ISI’s take on the Federal Reserves beige book (an anecdotal roundup of economic reports from its 12 districts) released Wednesday: The summary notes that “national economic activity continued to expand in October and November” and that business contacts “remained optimistic about the outlook for future economic activity.”  On the hiring side, the report noted that “employment gains were widespread across Districts” but also observed that “Overall price and wage inflation remained subdued.”

The previous week U.S. economic growth was revised upward in the third quarter to an annualized 3.9% from 3.5%. The US economy is doing well; the rest of the world – sluggish.

According to the National Retail Federation’s holiday spending survey, the average holiday shopper is expected to spend $804 this year compared to $767 last year, an increase of 4.8%.

But on Monday the WSJ created a stir by reporting that retail spending over the Thanksgiving weekend fell 11%, “a sign that the annual four-day shopping bonanza may be losing some of its punch.”

By Tuesday the Journal backtracked a bit saying the decline came in part because “retailers started offering deals in the days and even weeks before, giving shoppers ample opportunities to snag discounts without having to endure the lines and crowds that typify Black Friday.” And 80% of shoppers say they are giving gift cards that don’t show up in the stats until they are used. And spa packages, golf lessons, etc. are becoming more popular gifts but aren’t counted as retail sales. And more shoppers are on-line…etc.

Bottom line: too soon to panic about holiday shopping. Goldman Sachs opines “We maintain an optimistic view on consumer spending for the final months of the year, fueled by lower gas prices and solid job growth.”

WSJ: OECD Says Global Inflation Continues to Ease. “Inflation rates across the world’s largest economies eased for the fifth straight month in October as energy prices fell, an indication that few central banks will raise their benchmark interest rates in the months ahead.” The OECD puts global inflation at 1.7% y/y. A glaring exception is Russia where inflation is running at 8% as a collapsing ruble pushes up the prices of imported goods.

More anecdotal evidence of low inflation: Christmas tree prices are unchanged versus a year ago!

WSJ: The Russian economy will slip into recession next year as billions of dollars of capital flowing out of the country amid falling oil prices and Western sanctions. Economists now see the economy shrinking by -0.8% in 2015 compared with earlier expectations for recovery in economic growth to 1.2% from around 0.5% this year.

The ECB met Thursday and decided to postpone QE sovereign bond buying until early next year – maybe. Mario Draghi has talked a good game but the ECB’s balance sheet is shrinking.

New polls suggest Japan’s Prime Minister Shinzo Abe’s Liberal Democratic Party would win the forthcoming Dec. 14 election by a landslide.

Check out this video from KTVA on John Bruce, Alaska’s “teacher of the year”. Yep, he is our very own Laura Bruce’s husband! As many of you know Laura is a SVP and Director of Client Relations here at APCM. Apparently they get to go to DC and meet the President! How cool is that? Congratulations to John, Laura, and their family on this honor.

Jeff Pantages
Chief Investment Officer

 

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