Markets advance as consumers' outlook on the economy improves

Dow gained 124, advancers over decliners 4-3 & NAZ was up 56.  The MLP index added 1+ to 252 & the REIT index fell 2+ to 372 on higher interest rates. Junk bond funds slid lower & Treasuries had heavy selling, raising yields (more below).  Oil rebounded 2 to the 71s & gold dropped 21 to 2024.

AMJ (Alerian MLP Index tracking fund)

US job growth continued to chug along at a healthy pace in Nov, suggesting the labor market remains resilient even in the face of higher interest rates, stubborn inflation & other economic uncertainties.  Employers added 199K jobs in Nov, the Labor Dept said in its monthly payroll report, as striking autoworkers & actors returned to work,  & slightly above the 180K jobs forecast.  The unemployment rate unexpectedly fell to 3.7% after rising for 3 straight months, a drop that was driven by a sizable drop in the jobless rate for teenagers.  The report also contained modest downward revisions to job growth at the beginning of fall. Gains for Sep were revised down by a total of 35K jobs to 262K, suggesting that the labor market is weaker than it previously appeared.  Oct's gain was unchanged at 150K jobs.  The Federal Reserve has signaled it is closely watching the report for evidence the labor market is finally cooling after more than a year of interest rate hikes.  Policymakers voted last month to leave their benchmark rate unchanged for a 2nd straight time in order to assess the cumulative impact of previous increases.  In another welcome sign for the Fed, average hourly earnings, a key measure of inflation, increased 0.4% for the month & remain up 4% from the same time one year ago.  The monthly increase came in slightly ahead of the 0.3% estimate, but the annual figure was in line with expectations.  The labor market has remained historically tight over the past year, defying expectations for a slowdown.  However, today's report suggests that cracks are appearing after last year's blistering pace of growth.

US economy adds 199,000 jobs in November, unemployment rate unexpectedly falls

Consumer fears over inflation tumbled in Dec amid declining energy prices & as the impact of interest rate hikes take hold.  In the latest University of Michigan consumer sentiment survey, the 1-year outlook for the inflation rate slid to 3.1%, down sharply from 4.5% in Nov & the lowest since Mar 2021.  The 5-year outlook also moved lower, down to 2.8% from 3.2% the previous month.  Federal Reserve officials consider consumer expectations a key in the way inflation moves, so the switch in sentiment could further convince policymakers to keep interest rates on hold & possibly start cutting in 2024.  The University of Michigan survey is one of the more closely watched gauges.  Inflation sentiment in turn is tied closely to the direction of energy costs & prices at the pump in particular.  The price of a gallon of unleaded gas has fallen 22¢ to $3.18 over the past month, according to AAA.  The combination of a benign inflation outlook & a solid Nov jobs report helped push stocks higher in early trading.  Treasury yields also jumped, though they moved off session highs.  Inflation expectations are volatile; the 1-year outlook was at 3.2% in Sep before leaping higher in Oct & Nov.  Consumer optimism also jumped higher in Dec.  The University of Michigan index of consumer sentiment index rose more than 8 points to 69.4, tied for the best level since Jul.  The current conditions index registered a reading of 74, up nearly 6 points, while the expectations index surged nearly 10 points to 66.4.

Inflation expectations plunge in closely watched University of Michigan survey

Treasury yields jumped after the Nov jobs report showed the unemployment rate unexpectedly fall, suggesting continued tightness in the labor market despite the Federal Reserve's efforts to cool the economy.  The yield on the 10-year Treasury note was up by 9 basis points at 4.22% as it recovered some losses made earlier in the week when it dipped as low as 4.14%.  Similar levels were last seen in early Sep.  The 2-year Treasury was more than 11 basis points higher at 4.692%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Many investors have been hoping for economic data to signal an easing of the economy as they believe this could mean the end of the Fed's rate-hiking cycle & a clearer idea on when rates may be cut.  Fed Chair Jerome Powell said last week that speculating about rate cuts was “premature” & the central bank would tighten monetary policy further if necessary.  The Fed is due to meet next week & is expected to keep interest rates unchanged then.  Earlier in the week, ADP's private payrolls report for Nov showed that 103K jobs were added, lower than the 128K estimate.  Weekly initial jobless claims figures came in lower than expected.

10-year Treasury yield jumps as unemployment rate unexpectedly declines

The jobs report all but makes it clear that the Fed next week will take another pause raising interest rates.  Monthly jobs this year has been typically at or under 200K.  Last year it was generally over 200K & in 2021 many times it was over over 500K as the economy was recovering from substantial layoffs.

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