Today’s unexpectedly low job numbers are consistent with other indicators. They point to real growth in the vicinity of 2 percent to 3 percent as the economy wraps up 2021. The immediate outlook for stocks is highly uncertain.
The Week That Was
Today’s employment report indicated private payrolls increased by 235,000 in November, far below the 573,000 forecast by Dow Jones. The number of jobs remains 2 percent below its pre-Covid peak. Average hourly earnings rose at a 10 percent annual rate.
In other news, the ISM manufacturing survey for November shows manufacturing remaining strong, with an overall reading of 61. The important production, new orders, and backlog readings were also close to 61.
Prices continued to increase rapidly, with a reading of 82.
The labor market remains tight. November new weekly unemployment claims averaged close to 239,000, down from 287,000 in October. In early November, people receiving insured unemployment payments fell to 2.1 million, down from October’s 2.2 million.
Things to Come
Later this morning, the ISM survey for service companies should show continued growth with rapid price increases.
The November Markit survey for service companies registered a 57, down two points from October. The October ISM readings were much higher, with a composite reading of 67. If ISM follows Markit, the numbers for November will be down, likely into the lower 60s.
The only other significant upcoming economic release will be next Friday’s November consumer price report. Look for consumer inflation to remain at an annualized rate of 5 percent to 6 percent.
Market Forces
Stocks moved sharply lower this week: popular indexes fell by 2½ percent to 5½ percent. Large cap indexes were down 3 percent, and small caps fell 5 percent.
The main cause appears to be the emergence of Omicron, the latest Covid variant.
Research worldwide shows lockdowns to be the worst of all responses in their effects on health and the economy alike. Unfortunately, our health officials have not used either science or logic in dealing with Covid. As a result, there is no telling if they will now behave any differently.
The fate of economy and, therefore the stock market, remains in the hands of incompetent policymakers.
It’s doubtful we’ll see lockdowns, but predicting their response is difficult.
The good news for stocks is the Fed continued to pour money into the economy in November. This will boost stocks, spending and inflation well into next year.
Although Fed Chair Jerome Powell indicated the Fed could halt purchases of securities before mid-year, this policy change is unlikely to slow the Fed’s stimulus.
Technical stock market indicators are more negative than positive.
Yesterday, all of the major indexes closed above key resistance levels, which is certainly positive. However, trading volume has been lower on up days and stronger on down days, the opposite is true in strong, healthy markets.
Offsetting pressure from more money sending stock prices higher to concerns over the government reaction to Omicron means the odds are even with regard to the stock market’s next move.
Outlook
Economic Fundamentals: neutral
Stock Valuation: S&P500 overvalued by 30 percent
Monetary Policy: expansive