Weekly Market Review - Small-Business Optimism Soars

Last week, the government reported that the U.S. economy created 156,000 net new jobs in December. That was below the expectations of 175,000 jobs, but it’s still largely within the previous trend. Unemployment ticked up to 4.7%. There’s still the issue of millions of Americans out of the labor force. Fortunately, though, the labor-force participation rate rose by a tad. There are, of course, major demographic trends at play in that figure. But on balance, we can say that the jobs market is improving. The best news in the jobs report had to do with average hourly earnings. For December, AHE rose by a healthy 0.4%. That’s a good number, and it’s good news for us investors as well. That’s future revenue for our companies. Over the last year, wages have increase by 2.9%. That’s ahead of inflation, but not by much. Still, it’s good to see American workers finally get a real raise. One of the more interesting reports we got this week was that small-business optimism soared in December. Small-business optimism skyrocketed. It had its best monthly increase since 1980. The index jumped 7.4 points to 105.8, which is the highest since 2004. Obviously, a good deal of that is political. Small-business people lean right, so there’s certainly comfort for them in a new administration. But I wouldn’t be quick to dismiss this as solely political. Optimism, especially newfound optimism, is an important ingredient for an expanding economy. These will be the people who will approve new construction plans or give the go-ahead to hire new employees. There’s an erroneous belief that economic expansions must die of old age. Australia hasn’t had a recession in 25 years. Even eight years into our expansion, I think there are many reasons to believe that growth will accelerate this year. The “Trump Rally” is beginning to look a bit tired. Consider that the Dow has risen 22 times in 26 days. The Dow has tried to break 20,000 several times, but it can’t seem to do it. I wouldn’t be surprised to see the market pull back over the next few weeks. Nothing major. To add some perspective, the Dow first closed above 200 on December 18, 1927, and Dow 2,000 fell on January 8, 1987. Quietly, the market has slipped into a narrow trading range over the past month. In fact, for the Dow, this has been one of the narrowest ranges on record. Since December 9, the index has finished every trading day somewhere between 19,756 and 19,974. That’s 22 days locked in a range that’s a little over 1%. The Nasdaq, by contrast, had its first down day of 2017 on Thursday. The S&P 500 Tech Index got to its highest point since September 2000. The index is still below its high from nearly 17 years ago. The coming earnings season will be important because we’ll be able to see if companies have witnessed any real improvements in their sales and earnings.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.