Flat equities after "hot" Nov jobs report shows stocks proving more resilient than consensus expects... why is S&P 500 drawdown worse than Germany, China or Japan? Still see rally into YE towards 4,400-4,500

Equities are proving more resilient than consensus expects...

The strong November jobs report (on 12/2) of +263k vs 200k consensus (plus strong wage growth) gave markets every excuse to sell off sharply:

  • Strong jobs = Fed needs to tighten further = bad for stocks
  • S&P 500 opened down -1.2%
  • but gained throughout Friday and closed essentially flat (-0.12%)

Friday trading is an example of equities not conforming to the consensus narrative. The central view in markets is the Fed sees the US economy as too strong, and wants financial conditions to stay tight. Therefore, strong economic prints should imply a strong Fed pushback against easing financial conditions.

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The November PPI is set to be released 12/9 at 8:30am and we view this as the second most important inflation report after November CPI, which is to be released 12/13.

  • Consensus for Nov PPI is +0.2% MoM headline
  • In the coming week, markets will also pay attention to ISM services 53.3 consensus
  • U Mich prelim Dec 1Y and 5-10Y inflation expectations are also to be released
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The bond market has "sniffed" out inflationary pressures are breaking to the downside

To me, the equity markets are sitting at a key juncture. The headwinds that have savagely brought down P/E in 2...

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