A Soft Landing for the Holidays?

As we enter the final months of the year investors have ample reason to rejoice. The stock market has been soaring to new highs, and bond markets continue to provide attractive yields. Yet, what truly underpins this favorable financial environment is the resilient growth of the U.S. economy, which shows limited signs of slipping into recession.

The past week has only reinforced this positive outlook, as key indicators of economic growth - such as the new orders components of the ISM manufacturing and services PMI - have remained in expansion territory. These metrics often serve as leading indicators, further strengthening the case for a robust economy.

Moreover, the November data for the labor market has shown a rebound, with 227,000 new jobs added - exceeding expectations of 220,000 and revising last month's weaker figures slightly higher. While the unemployment rate inched up to 4.2%, it remains significantly below long-term averages.

Looking ahead, the fundamental backdrop for financial markets remains firmly in place, with the U.S. economy expected to achieve a "soft landing" - a modest slowdown without slipping into a recession. In particular, consumers can continue to benefit from lower interest rates and an increase in wage growth that surpasses inflation rates.

One potential area for investors to consider in the bond market is short-duration bonds and cash-like instruments. This is especially important given the current market conditions, where cash positions may be overweight. In anticipation of lower yields in the coming year, it would be prudent to gradually adjust portfolios by deploying excess cash into strategic allocations in both stocks and bonds.

Though there may be some policy uncertainties and market volatility on the horizon, it does not change our belief that market dips can present opportunities for investors. Ultimately, our assessment is that the economy will persist on its current course, and potential downturns can be navigated with confidence.

Economic & Earnings Calendar

Next week, the Bureau of Labor Statistics will release an important economic indicator - the consumer price index for November. This will be closely followed by the producer price index, published on Thursday. These metrics are expected to show a 2.7% year-over-year increase in the headline CPI, and a 3.3% rise in the core index.

In the corporate world, earnings reports from major retailers and software firms will also be in focus. On Monday, Oracle and Toll Brothers will reveal their financial results, followed by AutoZone and GameStop on Tuesday, and Adobe on Wednesday. The rest of the week will see earnings releases from Broadcom, Costco Wholesale, and RH on Thursday.

Chart of the Week: Average construction time for a new home over time.

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.