Year-End Forecast Has Stocks Up and Bond Yields Down

Approaching the midpoint of the month with only 14 trading days left in 2017, we???re seeing the first signs of a Santa Claus rally triggered by a very robust employment report.

Non-Farm Payrolls added 228,000 jobs versus consensus of 190,000 with the Unemployment Rate staying at 4.1%. The November Employment Situation report was basically more of the same with respect to labor market activity.

Job growth was strong, but wage growth wasn’t. The key takeaway from the report is that wage growth remains subdued. That isn’t likely to keep the Fed from raising rates at this month’s meeting, yet it could give the Fed a data-based reason to move more slowly on the next rate hike in 2018.

This past week, the Treasury market saw a continuation of the yield curve flattening trend, though the 2s10s spread, which identifies the difference in yield between the 2-year Treasury Note and the 10-year Treasury Note, dipped just one basis point to 57 bps. While last week’s contraction was minor, it is worth remembering that the 2s10s spread has contracted 72 basis points over the past year, leading to an uptick in worries about a slowdown in economic growth.

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