Job creation has been one of the main goals of the Feds and the economy has been adding jobs at the fastest pace since the late 1990s. In January employers added 257,000 jobs and, even more significant, the Feds revised earlier estimates showing an additional gain of 147,000 jobs in the months of November and December. The new numbers report that since the first of November employers have hired more than one million new workers, which is the best three-month performance since 1997.
It is clear that the economy is adding a lot of jobs – at least 200,000 jobs each month for the past year. This trend is vitally important as two-thirds of USA economic growth is created by consumer spending and in order to spend, consumers need job wages.
So, an additional positive indicator here is that consumer spending advanced at the pace of 4.3 percent in the fourth quarter of 2014; the fastest pace in eight years.
The Feds will raise rates very slowly and this has been the main catalyst for the stock market rise and the increase in new jobs.
Low interest rates allow companies to borrow money for capital expenditures and the school of thinking is that this lets companies create more jobs and hire more workers.
Low interest rates also continue to make it attractive for investors to hold stocks, and are one of the main reasons to remain in the stock market at this time.
Another catalyst to the positive outlook is the end of the US Quantitative Easing (QE) program(1) which stopped a few months ago after force feeding copious amounts of money into the system.
Still, Quantitative Easing Programs are now operating in Europe and Japan. As this artificially created money flows into the global economy, it will be invested in US treasuries and US stocks, causing the stock market to continue its Bull Market run.
In addition, the US economy is expected to have growth in 2015. This will also prompt investors around the world to buy US treasuries and this demand from international investors will continue to keep long-term interest rates low.
With lower gasoline prices and a strengthening labor market, we are seeing a surge in optimism among households creating a powerful catalyst to propel the US economy forward.
All and all we are seeing a stronger US economy and our general guidance is to remain in the stock market. You will read later in this newsletter our ideas about taking exposure in Japan and Europe, which now have their own liquidity programs underway.
In fact, for at least 2015, we believe that Europe and Japan will see the largest gains, far outperforming the US stock market. There is a chance will could see an exodus out of the US stock markets from foreign capital into the Japanese and European stock markets. This would have a negative impact on US equities.