March 8, 2017

Stocks opened mixed this morning despite a better than expected jobs report. The Dow is down 20 points, the SPX is flat and the Nasdaq is up .2%. The job report pushed bonds and interest rate sensitive sectors lower. So utilities, telecoms, REITs and consumer staples are down in early trading. The cyclical sectors, on the other hand, are up (materials, financials, tech, consumer discretion). The same report also pushed the VIX Index lower, now trading around 11. Remember, traders are anxiously watching the VIX for signs of a stock market correction. Not to belabor the point, but the prospect of better economic data—and thus higher interest rates—is also strengthening the dollar and weighing on commodity prices. WTI crude oil is down 1.6% to $52.20/barrel. Bonds, as I said, are lower in price, higher in yield today. Don’t miss this: the 5-year Treasury yield spiked to 2.10%, which is the highest level since the spring of 2011. The 10-year Treasury yield is up to 2.57%. 

Payroll processor ADP says the US economy added 298,000 new private sector jobs in February. Gains were widespread across construction, manufacturing, professional services, healthcare, hospitality, etc. Economists were expecting a job tally closer to 190,000; CNBC described this as an “absolute blowout.” This is the largest monthly payroll increase ADP has seen since December 2015. CNBC interviewed economist Mark Zandi, who said this number is about 3 times the amount of monthly job growth necessary to absorb normal growth in the working-age population. The job market is strong. Of course, we’ll have to wait until Friday to get the official Bureau of Labor Statistics job tally. 

Bob Doll, chief investment strategist at Nuveen, is featured in Barron’s this morning. He acknowledges this stock market rally is being driven by better economic data. He cites consumer confidence and ISM non-manufacturing index as examples, and says “we have seen an almost uninterrupted string of positive growth surprises in the US economy over the past several months.” But also present in this rally is an element of hope regarding President Trump’s policy agenda. And if any of his pro-growth initiatives are stalled, the stock market could correct. He thinks at current levels “equity markets may be ahead of themselves.” Nevertheless, Mr. Doll says he sees “few signs of stress that would signal a coming recession.” In addition, he has a “constructive view toward the global economy and believe[s] it is moving from a deflationary to reflationary phase.” So while he is cautious in the near term, he still assesses that a “pro-growth investment stance is warranted.” 
 


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