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Markets ended last week on a high note, marking the sixth straight week of gains and the longest winning streak for the major averages since late 2014.1 For the week, the S&P 500 grew 0.95%, the Dow gained 1.40%, and the NASDAQ grew 1.85%.2
Since August’s pullback, the S&P 500 has regained 12.40%.3 While headwinds still exist, and we don’t think that stock investors should breathe a sigh of relief yet, we’re happy to see that markets have regained some lost ground.
Underpinning the renewed investor optimism are some strong domestic fundamentals. After a lousy September report, a surprisingly strong October employment report showed that the economy gained 271,000 jobs. The number came in well above expectations of 180,000 and shows that the labor market continues to improve. Even better, wages grew 2.5% from a year ago – the highest year-over-year increase since 2009.4 The strong jobs report gave immediate rise to speculations about interest rate hikes.
In a speech before the House, Federal Reserve Chair Janet Yellen said that a December rate hike is still on the table. Will pulling the trigger roil markets? Maybe. Though the past can’t predict the future, we can look back and see that investors have often reacted nervously to any move (or expectation of a move) by the Fed. While a rate increase is a vote of confidence in the economy, it’s also a source of worry for some economists. China’s slowing growth and fragility among other emerging market economies mean that raising borrowing costs could have ripple effects across the global economy.
In her testimony, Yellen emphasized that the U.S. economy is growing well, though she indicated that soft global trade and exports are potential headwinds. Overall, it looks like the Fed isn’t committing to a date for a rate hike yet and will wait to see what the data shows in the coming weeks.5
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