Proving Confidence In The Days Ahead

The new year has started with quite a spring in its step!  The first trading days have seen stock prices moving higher each day.  With these moves we can all appreciate the gains for our investments, but in the back of our minds we are asking if this can continue.  Let’s dig into some reasons ahead that will prove if these good days continue or that we see a pullback.

Retail Job Drop

U.S. December Jobs numbers came in 148,000, versus 190,000 expected jobs created.  Even though the number of jobs created didn’t meet or beat expectations the market didn’t seem to hesitate.  This is mainly because of where the jobs were that saw losses.  Retail had the most job losses, which is interesting during a season of high retail traffic due to holiday shopping.  So this likely points to the continued story of increased popularity toward e-commerce versus going to a brick and mortar store.

The jobs numbers we continue to see ahead over the months will direct how Jay Powell, the new Fed chair will handle expected rate hikes.  Will the Fed hike interest rates faster or will they allow the economy to grow a bit before hiking rates?  Even with weaker than expected jobs these are still strong numbers we see.

Capital Spending Increase From Tax Reform

Capital spending will also confirm expected economic growth.  We’ve discussed before how the tax reform helps to give corporations more money with lower taxes and repatriation of overseas profits.  We will be looking to see what comes of these expectations.  As this will further prove if what we expect does actually happen.

We’re In A Later Cycle Economy

We’ve also previously discussed that we are in a later cycle economy, noted by a few factors:

• There has been a slight pick up in productivity.
• Inflation is starting to pick up
• Wage growth is starting to increase

Inflation and wage growth have been some pieces that the Fed has been desiring to see, and now we are slowly.

At some point we have to be cautious and watch for larger-than-comfortable increases, in the above items.  However, for now this growth is comfortable.

In the weeks ahead we will start to see corporate earnings reports again.  These numbers for the past quarter and also for the next few quarters during 2018 will show us whether the strength we believe we are seeing is really something we can remain confident in.

Stay tuned for the year ahead, but we believe these are some good reasons to stay invested for the long term!

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