November 30, 2016

Stocks opened higher yet again this morning (Dow +63 pts; SPX +.17%). The SPX just hit another all-time high. Energy and financials are bouncing back with strength. Utilities, telecom and REITs, on the other hand, are lower. So as you might guess, oil prices and interest rates are moving higher again. WTI crude oil is up 7% to $48.70/barrel on rumors that OPEC has reached a deal to cut daily oil production by a whole 1.5%. Whoopee. And by the way, copper is up over 20% this year and it’s not because demand has risen by 20%. According to Bloomberg, speculators are driving up commodity prices. Volatility in that space is spiking. Bonds are selling off again today. The 5-year Treasury is up to 1.83% and the 10-year Treasury yield is trading up toward 2.38%. 

The government upwardly revised third quarter gross domestic product (GDP). The US economy grew at its fastest quarterly pace (+3.2%) in two years. Consumer spending was revised up to a very healthy 2.8%. Critically, corporate profits surged 6.6% y/y to the highest dollar amount since the first quarter of 2015. Government and business spending were both revised lower. But investors are betting the Trump Administration can boost growth in those areas. The GDP also suggested that inflation decelerated a bit, to 1.4%. 

Payroll processor ADP estimates the US economy generated 216,000 new jobs in the month of October. That figure is significantly higher than economists were anticipating. The official BLS figures are due out Friday. Separately, personal incomes grew .6% in October from prior month levels. That’s also better than expected, and September income growth was revised up to .4%. On a year-over-year basis personal incomes are up 3.9%. The most important component of incomes, wages & salaries, is up a very strong 4.3%. Household spending, however, decelerated a bit to .3% m/m growth. Part of the reason is that September spending was revised up to .7% growth, so October growth is a bit under-stated. On a year-over-year basis household spending is up 2.8%. The consumer savings rate ticked up to 6.0%. Over the last month we’ve seen a marked improvement in economic data.  

Steve Mnuchin, our next Treasury secretary, today said the Trump Administration is targeting 3-4% sustainable economic growth. And the “number one priority is tax reform.”  

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