Labor Market Heats Up Again

The Dow Jones Industrial Average just surpassed the 25,000 mark, which is clearly another record high.  The last 1,000 points of this level grew within the past 23 days, making this the fastest 1,000-point gain in the history of the stock market.  Stocks have set record highs each of the first three days of the New Year, which doesn’t bode well for the outlook on interest rates in 2018.  There is strong historic support for the saying that, “As the New Year starts a wave, so goes the year.”  This could be a premonition of continued growth in the US stock market over the year, which generally adds upward pressure to mortgage interest rates. 

ADP released their estimate of new job gains in the month of December.  Not only did it beat expectations of 190,000, it blew right past them, showing 250,000 job creations.  Although the market is cheering this number, I assume it is largely made up of seasonal jobs that provide below-average pay.  However, I have not yet had the opportunity to dig into the reports.  The more important reading will come tomorrow when the Bureau of Labor Statistics (BLS)releases their estimate.  Based on the strength of ADP’s report, we can now anticipate a stronger report from the BLS as well.  Clearly, the economy is on fire and the labor market is tight.  It will be a real negative for interest rates if the Unemployment Rate drops below 4%.  A sub 4% rate can create significant inflation challenges as employers are forced to cough up higher wages to attract talent. 

There is very little to celebrate in the bond market.  I anticipate we will fall to the bottom of the current trading channel.  We will maintain our locking bias.