January 8, 2017

US stock market averages dipped after posting new highs on Friday. The Dow is currently down 20 pts and the SPX is flat. The tech & utilities sectors (+.4%) are leading the charge, but retailers and transports are also up modestly. On the other hand, biotechs and pharmaceuticals are down over 1% in early trading. The VIX Index is still hovering below 10 indicating low expected volatility. The rest of the world is also rallying. European markets are closing up about .3% and Asian markets were up overnight. Commodities are trading mostly lower, but WTI crude oi is up around $61.50/barrel. That’s a 2.5-year high. Shorter-term bonds are holding steady after selling off sharply last week. The 5-year Treasury yield is sitting at 2.29%, the highest since April 2011. Longer-term bonds are selling off today, with yields moving higher. The 10-year Treasury note yield is up around 2.48%. Investors are closely watching long bonds for any sign of rising inflation expectations.  

The US job market grew nicely in December, generating 148,000 new jobs. That’s a big step-down from November’s 250,000 jobs, but it certainly won’t derail a very strong labor market. The unemployment rate held steady at 4.1% and the under-employment rate ticked up to 8.1%. The labor force participation rate held steady at 62.7%. Inflation and wages are accelerating, but at a very manageable rate. Average hourly earnings (AHE) growth, which decelerated quite a bit in the fall, rebounded to 2.5%. That’s considered fairly low but healthy in the current economy. However, economists are pointing out the fact that other wage growth data have been stronger. For example, US Personal Income growth at 3.8% has been steadily accelerating since last summer. So it’s possible that wage inflation is finally rising. 

Fourth quarter earnings announcement season is right around the corner. Later this week, we’ll get announcements from JP Morgan (JPM), Wells Fargo (WFC), PNC Financial (PNC) and Blackrock (BLK). 

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