The Market Bull – January 4, 2019
The markets surged to new highs for the year today following yesterday’s bruising losses. As the generally down but yo-yo markets continue to demand nerves of steel and a strong stomach. One thing is certain, huge record swings in opposite directions from one day to the next isn’t normal.
The Bureau of Labor Statistics December Employment report handily beat expectations and put an exclamation mark on job creation during 2018. With 312,000 new jobs created the official unemployment rate increased to 3.9%. November and October were revised higher by a combined 58,000.
The average monthly job creation total for last year was a very respectable 220,000 per month and 2.64 million for the year. The official unemployment rate increased to 3.9% as more workers returned to the labor force pushing the participation rate up to 63.1%. Average work week increased to 34.5 hours, average hourly earnings gained .4%. As per usual the mainstream media was all over the report holding it up as proof positive that the economy is doing great and supposedly the markets jumped on the news. The reality is a little different, certainly the report was solid and 2018’s job and income gains were very respectable. Employment is a lagging economic indicator, so it says a lot more about the past than it does the future, or the present.
The post bust period since the Great Financial Crisis of 2007-2009 saw a huge experiment with unorthodox monetary policy as various central banks went all in with negative interest rates and quantitative easing, aka print money and buy stuff in an attempt to goose asset prices, hold interest rates down and juice their respective economies. From that perspective, particularly with asset prices they were largely successful. Fast forward to the present and we have blown yet another massive debt bubble, pushed valuations sky high and essentially set ourselves up for a repeat. The Fed knows this, and it was much of the impetus to raise rates, essentially put ammunition back in the gun, so they can cut rates in response to the next crisis. Additionally the Fed has been pairing down its bloated balance sheet as it and other Central Banks have realized that the path embarked on in the last 10-years is completely unsustainable.
The Fed tried to normalize monetary and fiscal policy in 2013 and 2015 both times the markets and the economy wobbled badly prompting a return to prodigious monetary stimulus. The question now of course is will they go in for another round as stocks and real estate wobble. Or, will they let the debts and gross overvaluations clear through default and sharply reduced prices.
Standard and Poors 500 Index closed at: 2,531.94 up 84.05
NASDAQ finished at: 6,738.86 up 275.35
Gold ended trading at: $1,286.20 up $8.60