Market Focus: Election Resolution and Strong US Economic Data

The elections and US economic data have resolved in ways that permit a further stock market rally -- although year-end profit taking is still a risk later this month and into December.   Biden's projected win and Republican's presumable retention of the control of the Senate are positives.  Biden may reduce the rancor in the country while a Republican Senate will likely prevent the most extreme Democratic proposals from being legislated.  Although 4 Senate races remain undecided, with some to be resolved by a run-off in early January, expectations that the Republican candidate will win should be enough for the market for now.  In addition, the market should react positively if Biden chooses moderates for his Cabinet -- but perhaps negatively if he does not.

Meanwhile, Friday's October Employment Report shows the economic growth remains strong going into Q420.  The Report showed a speedup in Private Payrolls and a drop in the Unemployment Rate -- the strength in both cases exceeding consensus expectations.  Private Payrolls rose 906k, versus an upward-revised +892k in September (was +877k).  Civilian Employment surged 2.2 Mn m/m.  The Unemployment Rate dropped to 6.9% from 7.9%, despite an increase in the Labor Force Participation Rate.  The Nonfarm Workweek stayed high at 34.8 Hours.  And, Total Hours Worked in October are 7.7% (annualized) above the Q320 average -- pointing to very strong Q420 GDP Growth.  Note that the Atlanta Fed model's early estimate of 3.5% is too low and will likely be revised up as more data come in.

One newswire reported a misleading article.  It argued that while unemployment is falling, long-term unemployment is surging.  It based this conclusion on data from the Report showing that Permanent Job Losers as a Percentage of Total Job Losers rose to 40% in October.  But, the number of Permanent Job Losers actually fell m/m -- and the uptrend has been modest.  What pushed up the Percentage is that the number of Temporary Layoffs fell by more than Permanent Job Losers.  

This week's US economic calendar will feature inflation data -- the October CPI and PPI.  Consensus looks for +0.2% m/m for Total and Core for both.  This pace will keep the y/y steady or lower for all these measures.  And, they will underscore the likelihood that it will take several years for the past inflation shortfall relative to the Fed's 2% target to be undone.