Hope you are all doing well. The major U.S. stock indexes recorded their sixth positive week in a row, although momentum continued to slow, with the S&P 500, the NASDAQ, and the Dow each recording a fractional gain. Friday’s S&P 500 closing level was the highest year to date; over the past six weeks, the index has climbed nearly 12%. This week, the heads of the nation’s best schools came under scrutiny for making out of touch assessments to Congress. I have broken down this week’s update using some of the most out of touch assessments of all time.
For the last 18 months we have been told by analysts and economists that the strong labor market and resilient consumer are finished . Like Dick Rowe they have been wrong. November’s jobs growth figure of 199,000 came in slightly above most economists’ expectations and extended a recent run of moderate but solidly positive labor market momentum. The latest figure was above October’s jobs growth of 150,000 but below the 12-month average of 240,000.
The unemployment rate slipped to 3.7% from 3.9% the previous month. The continued strength in the labor market provides consumers with the confidence to spend. Elevated inflation and rising borrowing costs are not as big a deterrent when people are working and getting raises. The tight labor market conditions provide the Fed runway to keep interest rate policy restrictive for longer. The reason I don’t see the Fed cutting rates next year is that they don’t want higher labor costs to cause higher inflation. For 2024, don’t expect unemployment to surge though it may ticker a bit higher as supply and demand for workers becomes more balanced. We might see less job openings but probably won’t see a spike in layoffs. The jobs data this week tends to confirm that view.
Bitcoin and crypto currency in general has taken its share of lumps the past two years, but it still has a future. Bitcoin, the most widely traded cryptocurrency, jumped to the highest level since April 2022. Bitcoin on Friday was trading around $44,000. That is up more than 13% for the week, and above a recent low of around $25,000 on September 1.
Don’t be fooled by the price of oil, we are not out of the woods on inflation. We still don’t have a long term strategy on how to keep the price of oil low. In the near term the price of U.S. crude oil remains low. It slipped below $70 per barrel on Wednesday to the lowest level in more than five months. That is well below a recent peak of around $89 on October 20. The Federal Reserve tends to look past volatility of commodity prices. They focus instead on the core inflation indexes, which exclude food and energy. However the price at the pump matters. It is a significant driver of consumer expectations on inflation. We saw that this week as the expectations for inflation fell to the lowest level since March 2021.
The University of Michigan reported on Friday that its December sentiment survey found that consumers expect the annual inflation rate to be about 3.1% 12 months from now. That is down sharply from the 4.5% figure in the November survey. Sentiment impacts spending, I think the improvement in sentiment could bode well for holiday spending. However, I think oil prices could become problematic as early as the second half of next year
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