- Just a couple data points from last week – the JOLTS (Job Openings and Labor Turnover Survey) showed continued strength in the jobs market, as the number of jobs open increased to 6,093,000. Consumer sentiment declined slightly, but it has been relatively high the last few readings so some reversion isn’t surprising.
- Tax reform dominated the news last week. Both the Senate and Congress have different, but similar bills and we should have some clarification in the coming weeks. It is looking like whatever is passed may disappoint markets however since even the preliminary bills do not have the shock value that was promised a year ago by then President Elect Trump.
- Another piece of news making the rounds is the yield curve. Most of you have heard me say that an inverted yield curve is a sign of recession, but now there is another camp that is saying the curve doesn’t necessarily have to completely invert to predict a recession. This camp says that the spread between the 2 year and 10 year treasury is just as important, if not more important – in fact, I listened to an economist at the RJ conference last week posit this very thing.
- Of course, there is an opposing view. Courtesy of JP Morgan:
- “With the yield curve the flattest it’s been in over a decade, the current debate circles around whether or not this is pointing to a future slowdown in growth, as it sometimes has in the past, or a function of supply and demand dynamics in a fixed income world warped by central bank policies. We would side with the latter view, as we do not believe that the current flattening is signaling a future slowdown in economic growth.”
We are starting to see a little volatility in the markets, or “churn” as the pundits call it. Our official opinion is that we may be entering a period where active managers can beat passive managers and the recent correlation breakdown in the S&P 500 may support that thesis. If tax reform does not pass before the end of the year we could be in for a repeat of the start of 2016 where markets corrected before rallying. Stay tuned…