Market Week in Review

A happy new year? U.S. job growth slows while markets soar

On the latest edition of Market Week in Review, Rob Cittadini, director, Americas Institutional, and Mark Eibel, director, client investment strategies, discussed the latest U.S. jobs report for December as well as the strong start to 2018 for financial markets across the globe.

U.S. December jobs report: Weaker than expected

During the month of December, the U.S. added 148,000 jobs, Eibel said, coming up a little short of consensus expectations. However, he stressed that investors probably shouldn’t read too much into the numbers, as winter months like December tend to see more volatility in job creation due to rough weather. As proof, he noted that financial markets were seemingly unaffected by the employment report, with no real change in direction or movement. “The main thing to focus on instead is wages, which were solid, with average hourly earnings in December increasing to 2.5%, year-over-year, according to the Labor Department,” Eibel said.

Going forward, he and the team of Russell Investments strategists expect the U.S. economy to add approximately 160,000 jobs per month—slightly less than in 2017, Eibel said, due to the nation’s low unemployment rate.

Strong start for U.S. markets in January

Zooming in on the performance of U.S. equity and bond markets during the opening week of the year, Eibel said 2018 picked up right where 2017 left off. “Today feels like December 36th,” he quipped, “with the same positive trends we saw all of last year continuing.” Markets are being driven upward, Eibel said, by a slew of strong economic data. “Whether it’s manufacturing numbers, construction numbers, or non-manufacturing numbers—you name it, the trend is good in the U.S.,” he remarked. In addition, Eibel believes that the recent passage of the U.S. tax reform bill is also propelling markets forward. “While we don’t know what impact the new law will ultimately have on the economy, there’s a hope among many investors that it could deliver on all its promises,” he said.

What could potentially offset all this good news? The continued relatively high valuations in the U.S. equity market, which in Eibel’s viewpoint are a bit of a concern. “There seems to be an ongoing battle between this and the steady stream of good economic data,” he said—“but right now, the bullish case is beating the bearish case.”

Global markets ring in 2018 with a bang. Are riskier times ahead?

Expanding the conversation beyond the U.S., Eibel said that both emerging and developed markets across Europe and Asia also saw strong returns the week of Jan. 1. The reasons are mainly the same as in the U.S., he said: solid growth in both manufacturing and services. “The economic growth we’re witnessing is a global story,” Eibel remarked, adding that because European markets are still a little cheaper in valuation, they’re likely to experience higher lift than their U.S. counterparts.

While the overall economic outlook appears rosy, it’s important to remember that 2018 won’t be without risks, Eibel said—just like any other year. So, what should investors watch out for? He believes that the greatest risks will revolve around geopolitical issues, particularly in the U.S. and potentially in South Korea, where the Winter Olympics will be held in February. “This could lead to a little more market volatility as we go further into the year,” he concluded.

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