Nonfarm Payroll Review
Jobs numbers released this morning point to an extension in this record long bull market. 263,000 jobs were added to the market in April, and the unemployment rate fell to 3.6%, the lowest jobless claim since December of 1969. There were upward revisions to both February and March’s employment numbers as well. This is by far the longest stretch of continuous job creation in US history, having lasted 103 months starting October 2010.
Wages grew 3.3% year-over-year with the average hourly wage being $27.77 an hour. This represents a solid pay increase but not over accelerated, leading me to believe that this will not have a material effect on consumer prices and inflation should stay steady. The related Fed implication of such a favorable growth trajectory is particularly positive (discussed below).
Businesses still adding this many jobs implies that there is still room for expansion in the economy. Businesses wouldn’t be adding 263,000 net jobs, after taking out the perpetual job loss from the retail industry, if they believed the economy was going to slow down. More American’s are employed right now than I have ever seen in my lifetime and at the highest hourly wage. American’s are going to have a larger discretionary spending budget than they have had in the past, especially considering Q1 had low domestic spending signifying more money to be spent in the quarters to come.
The Federal Reserve kept interest rates steady in their most recent meeting, which concluded this past Wednesday. Fed Chairman Jerome Powell is very confident that his stance to keep rates low has had a very positive impact on the economy and I am inclined to agree…for now. Powell stated that the continuous positive flow of jobs into the economy, “the uptick in labor force participation,” and the increased productivity “does suggest more room to grow. It suggests that a less tight economy may be part of the explanation for lower inflation”.
Fed's current stance has investors concerned about a lack of interest rate flexability in the case of an economic slow down. The Fed can only cut interest rates as much as they have raised them and if the Fed Funds rate is already low when the economic cycle starts to turn south, their is a limited amount that the Fed can do to stabilize the economy. Unfortunately, there is no perfect science in current economic theory, and the Feds current rate stance has kept the economy above water.
With optimism in every corner of the market including an uptick in consumer sentiment, brings me to the conclusion that equities have more room to run, at least in the short run.
Some Market ETF’s to Consider:
Vanguard Information Technology ETF (VGT - Free Report) :
This ETF follows the tech industry and has been outperforming the broader market by more than 10 percentage point’s year to date. The expense rate of this ETF is 10 basis points (.1%) annually. This is an ETF to get into if you are confident about the market rally considering its beta is above 1. This ETF will likely continue to outperform the market if this bull equity market continues but if there is a downturn VGT will likely underperform. Higher risk but likely higher reward than other ETFs because of the high beta’s associated with tech. Holdings include Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Visa V, Intel INTC, IBM (IBM - Free Report) , Broadcom (AVGO - Free Report) , and many more household tech names.
Vanguard S&P 500 ETF (VOO - Free Report) :
As the title of this ETF suggests it follows the S&P 500, making it one of the most “vanilla” ETF’s you could have in your portfolio. With short-term sentiment up it is imperative to be holding a diversified cap-weighted ETF that covers the broader equity market. This ETF has an expense ratio of only 3 basis points (.03%) annually. Holdings include all the big-name stocks such as Amazon (AMZN - Free Report) , Facebook (FB - Free Report) , Berkshire Hathaway , Johnson & Johnson (JNJ - Free Report) , Exxon Mobile (XOM - Free Report) , JP Morgan (JPM - Free Report) .
The S&P 500 and the NASDAQ composite are both trading just below their all-time highs testing these levels. Keep an eye on equities as earnings continue to be released.
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