Tahoe Market Pulse: the economy — things are looking up
The market rally remains intact, albeit with some temporary moves to “risk-off” securities, like Treasurys, top corporates and the least volatile stocks.
The market’s leadership can quickly swing from risk-on to risk-off, or vice versa, with little apparent reason and we’ve seen that again and again. One shouldn’t overanalyze it.
Risk-on vehicles cooled upon the realization that tax cuts and tax reform won’t be quickly passed. Congress moves at glacial speed, so Senate Republican leader McConnell said those will likely have to wait until after the August recess.
That means cuts will probably not take effect until January and their positive corporate effects delayed. Same for eliminating Obamacare’s taxes on investment income and capital gains.
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Apart from what’s happening (or isn’t) in Washington there are some encouraging signs beginning to appear in the real world. Hiring picked up in February with a surge in new jobs. ADP, the largest payroll processor, said there were 298,000 new jobs last month in the private sector.
The workforce grew by much more, which means some formerly discouraged people are looking for work again. The Labor Department confirmed the trend citing 235,000 new non-farm jobs. Construction was a strong area, a good sign. Hourly earnings rose year-over-year at 2.8 percent.
Also good, though not great. Maybe, just maybe, employers and some would-be employees are becoming increasingly optimistic about the economy. Not maybe. Confidence among homebuilders surged the most in 12 years.
CEO optimism jumped the most in seven years. Consumers are more upbeat, too. The University of Michigan sentiment index over the past three months has been the highest in a decade.
The improving economic picture bolsters the case for a rate increase and to no one’s surprise we saw one last week. Investors were quick to buy stocks after Janet Yellen’s projection that there will be two more increases this year, not the three or four some expected.
Bonds also surged with the yield on the ten-year Treasury falling under 2.5 percent, exactly where it began the year. Utilities are almost back to their all-time highs. The market tells me that investors are not concerned about rising rates, nor should they be.
They are more focused on the growth outlook, and the data and rising sentiment among producers and consumers alike are reasons to be more optimistic. Bottom line: for the economy, corporate profits and yes stock prices, things are looking up.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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