Stocks sold off. The “accepted” reason is concern that central bank stimulus might not be able to boost inflation as crude continued to fall and American wages fell. What is missing in this narrative is the strong advance leading into Friday. What I will also add is the possibility of further Washington gridlock.
As I mentioned the other day, Gallup stated that for the first time since its 1935 inception Americans view the greatest threat to their well-being and their greatest concern is the government.
Selling commenced in earnest following the Nebraska Supreme Court ruling permitting the Keystone Pipeline, a project the President as vowed to veto. The Republican controlled Congress has ensured a showdown.
According to a recent USA Today poll, only 41% of respondents disapprove of the pipeline. Is the President continuing to act against the wishes of the electorate?
As noted by many, the President has the unenviable position of losing the greatest number of Congressional seats in at least 122 years, partially the result of his policies. Since the election it is generally accepted the President has moved even further left, embarking upon policies and actions that is infuriating many.
Like many I am tired and disgusted with Washington and have consistently expressed the greatest threat facing the economy and job creation is Washington, a view that is now shared by many Americans as the country’s greatest threat or concern.
Speaking of jobs, the employment data was mixed. On the positive side, more jobs were added in December than expected; capping the best year for the labor market since 1999 and the unemployment rate fell to 5.6%, the lowest rate since June 2008. The jobless rate averaged 6.2% last year, down from 7.4% in 2013 and the biggest decrease since 1984.
The negative news is that earnings unexpectedly fell as did the Labor Participation Rate (LPR). The LPR decreased to 62.7% from the month’s prior level of 62.9%, matching the lowest level since February 1978.
While the drop in pay is disturbing, I think it can be partially explained by the mix of workers on payrolls, influenced by big gains in holiday hiring and retirements of more expensive older workers.
The employment report regardless suggests the US is the strongest global economy, performing exponentially better than the vast majority.
Fourth quarter earnings season commences tomorrow. The pivotal question is whether the stronger dollar is impacting sales and profits of the S & P 500. As noted many times approximately 48% of & P 500 sales and 52% of profits are generated from trade.
How will the results be interpreted?
I do think the out performance Friday of the Russell 2000 as compared to the other major indices is of some significance. The smaller capitalized issues primary market is the US, a region that is economically outperforming most other regions and is not necessarily impacted by a rising dollar.
Will the market mark time this week ahead of next week where there is a host of potentially market moving events including the SOTU address where the President is expected to take an adversarial tone towards the Republican controlled Congress?
Data released include several sentiment surveys, retail sales, inflation and manufacturing data and weekly jobless claims.
Last night the foreign markets were up. London was up 0.24%, Paris up 1.42% and Frankfurt up 1.46%. Japan was up 0.18% and Hang Sang up 0.45%.
The Dow should open moderately higher on merger news following the first back to back weekly decline for the S & P since October. The 10-year is off 9/32 to ield 1.98%.