Santa Takes a Detour

Main content

The anticipated Santa rally was put on hold this week, detoured by heighted concerns regarding trade and potential Federal Reserve actions. Maybe investors need to check their lists twice. Today’s job numbers were a slight disappointment on the headline with 155,000 jobs added in November, below the 12-month average of 209,000. Wage increases were steady at 3.1% and the unemployment rate remained at 3.7%. This blah report will not likely stop the Fed from hiking in December but it affirms the outlook of moderating growth and a labor market that is not overheating. Perhaps the Fed is closer to the neutral rate than previously thought.

Meanwhile, third-quarter productivity was revised up to 2.3%. This is below the second-quarter reading of 3% but significantly better than the 2012–2016 average of 0.8%. Higher productivity mutes the inflationary effect of wage hikes and allows employers to maintain profit margins. The trade tariffs have trimmed about 0.2% off GDP but overall the economy is still dancing and prancing above trend. The ongoing tension with China is indeed concerning, as are the Brexit negotiations, French unrest and the Italian budget showdown. But don’t count Santa out yet — fundamental earnings are advancing and still look jolly in 2019.

Please watch earnings growth and the market on page 7 of the Global Perspectives book.

Footer content