December 6, 2017

Stocks opened mixed today—the Dow and SPX are currently flat. Utilities opened lower but quickly about-faced and are up about .3%. Tech is rebounding roughly .7%. Telecoms and energy, however, are down 1% in early trading. European markets are poised to close lower and Asia was down overnight. UBS says it expects China’s economic growth to decelerate to around 6.5% next year. Not surprisingly, most commodities are in the red today. The Bloomberg Commodity Index is down about 1%. WTI crude oil is down 2% to about $56.30/barrel despite a draw-down in US oil inventories. Bonds are trading higher today after a two-week selloff. The 5-year Treasury yield is back down to 2.12% and the 10-year is down to 2.32%. 

I can’t help but quote a CNBC article, which explains “With global equities under pressure from sliding technology stocks and the US bond market suggesting investors are cautious about the economic outlook, industrial commodities such as crude and copper are feeling the pinch.” This is a perfect example of the extremely short-term focus of the financial news media. If your investment horizon is longer than this morning, this statement has little basis in fact. Most European, US and Asian stock markets are up 20% or more this year. Low long-term interest rates reflect a lot of factors besides caution about the economic outlook. The economy is actually quite strong, and we’re on track to achieve three consecutive quarters of 3+% economic growth for the first time in more than 10 years. Next, a one-day decline in oil prices—which are pulling back from 3-year highs—says nothing about global economic growth. Finally, far from feeling the pinch, copper is up over 16% so far this year and if a correction is developing it will either be driven by technicals, speculation, or maybe economic news out of China.  

Payroll processor ADP estimates the US economy generated 190,000 new jobs in November. Weather-related data disruptions appear to be in the rear-view mirror. The job market is still growing faster than necessary to account for population growth, and that means the unemployment rate will likely continue to fall. ADP says both services and goods-producing companies are hiring, as are both small and large companies. In other words, gains are broadbased. This is probably a good sign for the Friday’s Employment Situation Report from the Bureau of Labor Statistics. 

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