Stocks Uptrend Intact

The stock market should stay in an uptrend, as this week's key US economic data are not expected to change the macroeconomic picture of slower growth/inflation and its implication for steady Fed policy ahead.  

Consensus looks for another sub-200k m/m increase in Nonfarm Payrolls for November.  Total is seen up 170k and Private up 131k.  These estimates include 38k net returning strikers (returning less new strikers), so the underlying pace is even weaker -- 132k Total and 93k Private.  And, they show a slowdown from October's data excluding strikers of +180k and +129k, respectively.  The Unemployment Rate is expected to be steady at 3.9%.  

Evidence from the Claims data point to a slowdown in Payroll growth as well as an uptick in the Unemployment Rate, although questions about their reliability in this holiday season suggest caution in relying on them.  Layoffs appear to have picked up in November, as Initial Claims were 221k in the four weeks ending in the Payroll Survey Week, versus 206k in October.  And, it may have become harder to be rehired, as Continuing Claims rose 144k in November versus 118k in October.  The Insured Unemployment Rate rose by 0.1% point in November, as it did in October -- when the Civilian Unemployment Rate rose to 3.9% from 3.8%.

Consensus looks for a slight speedup in Average Hourly Earnings to +0.3% m/m from +0.2% in October.  This higher pace is still below the +0.4% trend seen earlier in the year.  And, it is consistent with the Fed's 2% inflation target after taking account of productivity growth.  An uptick could result from the new UAW contract.

A recession does not seem imminent, however, despite the increase in Unemployment Claims.  Consumer Spending appears to be holding up, although slowing.  October Consumer Spending set the stage for 2+% (q/q, saar) consumption growth in Q423.  And, reports of holiday sales in November were strong.  Housing demand may have responded already to the pullback in longer-term yields, as mortgage applications have moved up steadily since making a low in late October.  The Atlanta Fed model's latest estimate of Q423 Real GDP Growth is 1.8%.  This pace is in line with the Fed's estimate of longer-run growth and not weak enough to argue for monetary policy easing.

Indeed, the rallies in the stock and Treasury markets, as well as the weakening in the dollar in the FX market, could be laying the groundwork for a speedup in economic growth in H124.  They essentially act as "built-in" stabilizers.  In addition, spending on defense, alternative energy and re-shoring of manufacturing should continue to provide forward thrust to the economy in the background.  A growth speedup could be problematic for the Fed, particularly if there is not much slack in the labor market.   This possibility could become the most consequential downside risk for the stock market ahead.