Economic and Stock Market Commentary for the week of November 14, 2017

Alex Ralicki |

Investors have had a lot to ponder in recent weeks.

For starters, there is the economy, where the news has been largely reassuring. To wit, both manufacturing and non-manufacturing levels remain high; consumer confidence is strengthening; and employment is picking up. On this last count, the nation added 261,000 jobs in October after having gained just 18,000 new hires during hurricane-ravaged September, while unemployment dipped to 4.1%. However, the labor-force participation rate fell again and average hourly wages eased slightly. Even so, GDP growth, a solid 3.0% in the third quarter, should hold in that range during the current period.

Then, there is the Federal Reserve, where Fed governor Jerome Powell is the nominee to replace Janet Yellen as Fed Chair. It also is where the bank voted recently to hold the line on interest rates. Still, given the staying power of the business upturn, we think there is a good chance that a rate hike will be forthcoming at the mid-December FOMC meeting.

Earnings season also is a headline grabber, with many more companies than not exceeding consensus forecasts on both the top and bottom lines. Reactions have been swift to these issuances, with frequent sizable moves in the affected stocks taking place.

Politics remain on center stage, with efforts to pass a tax cut being the current attention grabber in Washington. Given the controversial changes being proposed, passage of the House bill in its present form is by no means assured.

The bull market is in the news, as well, with one record after another having fallen by the wayside in 2017 in an all-encompassing advance that has been generated by strong earnings, a durable economic upcycle, a cooperative Fed, and optimism on the tax front. Overall, down ticks have been few.

Challenges remain and multiples are extended, but equities still have appeal, especially in a low-interest-rate environment, in which attractive investment alternatives are hard to find.

Conclusion: We remain cautiously optimistic on the outlook for stocks. But given the extended nature of the bull market, we suggest investors focus on quality names with well-defined profit and market prospects.