2018 Poised To Be A Much More Interesting Year Than Many Are Expecting

Stocks continue to be on a tear while the dollar just experienced its fifth straight week of declines against a broad range of currencies, hitting a 3-year low against the euro. Make America Great Again (better known as MAGA) isn’t doing much for the greenback. The bulls are fully in charge when it comes to stock indices, making new high after new high with most every country ETF, outside of Mexico, in overbought territory in a rally that looks to us to be blissfully ignoring what it doesn’t like and seeing only what it does. Begs the question how long can this last?

The bulls cheered the news that Walmart (WMT) is going to raise wages, provide bonuses and expand maternity and family benefits while utterly ignoring the fact that it rather abruptly announced it will be closing 63 Sam’s Club stores. That news, by the way, bumped shares of Cash-Strapped Consumer investment theme company Costco Wholesale (COST) up over 3% this week.

December’s Bank of America Merrill Lynch survey of global portfolio managers found that 45% of respondents believe the equity market is overvalued, the highest level in the 20-plus year history of the poll. Yet, a net 48% are more exposed than normal to the stock market as FOMO (Fear Of Missing Out) and TINA (There Is No Alternative since most think bonds are also overpriced) conspire to keep stocks moving higher.

It isn’t just at Wal-Mart where we are seeing a shift in employment data. Initial jobless claims rose 11,000 for the January 6th weekly report – the fourth consecutive weekly increase and a three-month high. This week’s JOLTS report revealed that job openings fell by 46,000 in November to sit at the lowest level in six months, after having declined in three of the past four months. New hires also fell 104,000 and are down in the three of the past four months. Both of these are consistent with late business cycle dynamics.

We are also looking at a 2.9% personal savings rate and a 4.1% unemployment rate. To put that in context only 15% of the time since WWII has the unemployment rate been this low and yet, Friday’s Earnings Report from the Bureau of Labor Statistics showed that there is little wage pressure. Real average hourly earnings for production and nonsupervisory employees, (about 80% of the population) increased 0.1% from December 2016 to December 2017. If we combine that with the 0.6% increase in the length of the average workweek, weekly take home over the prior 12 months grew a whopping 0.7%. Apparently, that isn’t all that concerning to most as Bloomberg Consumer Confidence data hit a new expansion high. Must be those growing credit card balances keeping folks happy. But much like the market melting higher…we have to wonder how much longer that can last?

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