Big Fed news, a rebound in job creation and a roaring market


Big Fed news, a rebound in job creation and a roaring market

The week ahead for investors is about as packed with excitement as you could ever expect. So instead of a long preamble, let's just have at it:

The future of the Fed

If previous statements from the White House can be trusted, President Donald Trump this week will be naming the person he wants to lead the Federal Reserve for the next four years. Trump has an overseas trip planned that starts Friday, and he has indicated that the pick will come before then. He has stated in various media interviews that he wants to get the process moving. As of now — and these things can change quickly — but the market widely expects Trump to name current Fed Governor Jerome "Jay" Powell to take the central bank helm when current Chair Janet Yellen's term expires in February. Powell likely would not be a radical departure from Yellen's approach to monetary policy, though he might be a bit more likely to ease up on bank regulations. Trump pretty much can't lose on this appointment, as the market views most of those considered finalists positively. However, there could be some reaction if he chooses Stanford economist John Taylor, the developer of a rule that, at least on the surface, would suggest considerably higher interest rates.

The present of the Fed

Speaking of the central bank, the Fed has a meeting this week that will be more important for implication than it will be for action. There's virtually no chance of a rate hike at the Tuesday-Wednesday gathering of the policy-making Federal Open Market Committee. However, that doesn't mean investors won't learn something about where the Fed is headed in the future. Economic data points of late, save a September jobs loss considered an aberration due to the strong hurricane activity this season, have been pretty strong. Most recently, we learned that the economy may have grown 3 percent in a third quarter that was supposed to have been slowed by the aforementioned storm activity. Though inflation pressure remains weak, the Fed's language concerning progress in the economy will be considered key. So even if there's no move on rates, the meeting this week will bear close watching.

Jobs Friday awaits

Speaking of the Fed, and speaking of the economy, and speaking of jobs, there's a huge report on tap for Friday. That's the date the Bureau of Labor Statistics releases its count of job growth in October. After the somewhat stunning 33,000 decline in nonfarm payrolls for September, economists expect a pretty major rebound for this week's release. The current forecast is for growth of 310,000 jobs, according to FactSet. But that might be on the low side. Capital Economics, a forecasting firm with a pretty good reputation of getting these things rights, estimates the final BLS number could be 350,000. "The two hurricanes ended up having a big impact on the September employment report," Michael Pearce, U.S. economist at Capital, said in a preview of the jobs number. "All the indications are that the labor market is bouncing back quickly from the hurricane disruption."

And there's more

In addition to all that, there are a few other things to look out for in the week ahead. All the talk last week was over those blockbuster earnings reports from big tech companies like Amazon and Google parent Alphabet. The Nasdaq, which is a reliable gauge for the sector, rose 2.2 percent on Friday alone and is up a gaudy 24.5 percent for 2017. With profit numbers like we saw, it's hard to make a convincing argument for a bubble, which happens when share prices wildly exceed earnings. It's clear, though, that tech is the sector to watch in terms of the bull market's durability. Profits are clearly driving this market, and the picture is getting better. With 65 percent of S&P 500 companies' earnings reports in the books, 76 percent have beaten Wall Street expectations for the bottom line and 67 percent have topped on sales, according to FactSet. That's been good for a 4.7 percent growth rate, against a 3 percent projection as of Sept. 30. The correlation is pretty clear.

The last word

Liz Ann Sonders of Charles Schwab delivers the words of wisdom this week. The firm's chief investment strategist took a look at the prospects for the U.S. economy, and believes it's setting up for another leg up thanks to an increase in capital spending for business. Capex has been a missing link in the expansion, and it could be part of a late-stage push, Sonders said in one of her regular reports for clients: "It's been referred to a period of secular stagnation, the post-debt supercycle, the new normal, among others. The U.S. recovery/expansion since the global financial crisis has left a lot to be desired with sub-par real gross domestic product (GDP) growth, disinflationary pressures, and anemic capital spending trends. Beneath the surface, there have been reasons for optimism that the stagnation was not a fait accompli; and now, those reasons for optimism have breached the surface. In particular, the pick-up in business capital spending (capex) is a relatively new bright spot for the U.S. economy; and in 2018 it will likely be a shining characteristic of the latter innings of an economic expansion."