Jobs report bad – markets up?: The November jobs report on Friday showed the U.S. economy gained 245,000 jobs last month, and the unemployment rate falling to 6.7% from 6.9%. Economists had expected a 432,000 jobs gain and an unemployment rate of 6.8%.
This shows that the economic recovery is slowing and hasn’t met expectations, yet the markets were up with the S&P, DJIA, and Nasdaq closing .88%, .83%, .70% up respectively. Why has this happened, where’s the disconnect between the markets and the economy?
The markets don’t discount the bad data, but the bad data isn’t relevant in the current context. We are being promised a stimulus bill and vaccines are being rolled out which will boost the recovery. As long as these two developments are underpinning the background, backward looking data is not as important nor relevant.
Holiday Spending: According to Morgan Stanley, a majority of Americans intend to spend roughly the same or more than they spent last year for this upcoming holiday season. The highest earners are likelier to spend more when compared to their lower earning counterparts, with 73% of those making $100k+ expecting to spend more or the same this year. This is another metric that shows it’s the lowest earners are suffering the most during the pandemic.
Consumer spending across categories: Goldman Sachs estimates that consumer activity is back to 97.6% of per-virus levels.
Looking at it more in detail- clubs, sports, and entertainment, hotels, and clothing are down the most when compared to their February levels. In contrast, housing, communication, and financials are near 100% of their pre-virus levels.
Tweets and Charts we like:
The negative link between US equities, especially stocks, and the 10-year rate on Treasuries. This intuitively makes sense between tech companies promise growth and those future cash flows are discounted back at a higher/lower rate according to the rates movements.
Fun chart indeed!
The trade-off in investing
True diversification courtesy of ValueStockGeek:
Bill Ackman on his greatest investing mistake:
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