Weekly unemployment numbers continue to trend lower.
The Week That Was
Early November initial weekly unemployment claims were 267,000, down slightly from October’s 287,000. The early November number of people receiving insured unemployment payments was 2.1 million, down from October’s 2.2 million.
October retail sales increased by 1.7 percent from September. The explosive rise put sales 14 percent above a year ago and at a 17 percent annual rate above the depressed third quarter average.
In other news, the Fed’s measure of October manufacturing production rose 1.2 percent. The increase represents a 5 percent annual rate increase from the third quarter average.
The Homebuilders’ survey for early November jumped three points to 83, signaling ongoing strength in new home activity.
Things to Come
Market business surveys will provide the most current view of overall business. On Tuesday, the November reports are likely to show numbers close to 60, slightly above the readings for October. If so, it would indicate the economy is growing nicely despite supply constraints.
On Wednesday, the government will report revised third quarter GDP numbers as well as monthly data on October spending and income.
The GDP report will also include the first estimates of third quarter profits for the entire economy. While earnings for the S&P500 companies were strong, data from the US Treasury show third quarter receipts down 15 percent from a year ago. If profits for the entire economy are weak, it would suggest small and mid-sized companies continue to face major earnings challenges.
Also on Wednesday, October new orders for durable goods should reflect optimism regarding continued growth.
Market Forces
Stock prices were mixed this past week. The tech led-QQQs soared almost 3 percent, the Nasdaq rose 2 percent and the S&P500 slightly over 1 percent to new all-time highs, while small cap ETFs fell 1 percent-2 percent.
The economic news this week was mostly positive. Retail sales, manufacturing production and new housing activity were all strong. Interest rates also helped. After soaring early in the week, rates ended the week unchanged.
Corporate earnings reports continue on the upside. With over 90 percent of the S&P500 companies reporting, Zach’s is estimating third quarter profits are coming in higher than the second quarter numbers.
The latest move in in the S&P500 places it 34 percent above its fundamental value. After over a decade of being undervalued, investors are becoming more comfortable with stocks being overvalued.
Adding to investors’ comfort with stocks is the Federal Reserve’s apparent comfort with further monetary stimulus despite rising inflation. Interest rates remain well below their fundamental value, which then boosts stocks. Monetary policy remains highly expansive, providing a tailwind keeping stocks elevated.
Outlook
Economic Fundamentals: neutral
Stock Valuation: S&P500 overvalued by 34 percent
Monetary Policy: expansive
