It’s jobs report Friday, and with the strongest monthly gain (+313,000 new jobs) since July 2016 markets were in a celebratory mood. Unemployment remained stable at 4.1%, as the jobs numbers reflected new people entering the work force. Markets have vacillated between shrugging off Trump’s announced tariffs and worrying about an all-out trade war, but so far seem more convinced that there is more bluster than bludgeoning ahead.
This week the bull market turned nine years old and showed few signs of running out of steam as corporate earnings remain strong (at the fastest pace of growth since 2011 (+15% from the earlier year). The impact of corporate tax cuts, a weaker US dollar and stabilizing commodity prices are also expected to be supportive, but many analysts are expecting the stock market to be far more selective this year, and not just broadly strong.
The sheer length of the current bull-run underscores that there are managers and traders today who have never actually experienced high volatility, a true correction or a sustained downturn in their professional lives. The smaller that the events of 2008 grow in the rear view mirror the more distorted forecasts and risk assessment is likely to be and this is something that we force ourselves to keep asking about in our discussions with managers.
The consensus is that the jobs report will keep the Fed on its gradual tightening path – which has now developed to a 4/4 projection – with 4 rate rises predicted in each of 2018 and 2019.
In other news President Trump agreed to a meeting with the North Korean leader which increased the focus on that particular geopolitical flashpoint, but also increased the probability that it will fade as a source of near term uncertainty. This will further act as a floor under markets as the positive drivers listed above continue to have an impact.