Investors are trying to read the tea leaves in a choppy U.S. stock market to gauge whether its recent run higher can continue after Federal Reserve Chair Jerome Powell unleashed bullish sentiment at the end of November by indicating its aggressive interest rate hikes could slow. “The leadership of the stock market is telling you that the economy isn’t going to collapse under the weight of the Fed in the near term,” said Andrew Slimmon, a senior portfolio manager for equities at Morgan Stanley Investment Management, in a phone interview. “I think you’re going to get a strong market into year-end.”
Slimmon pointed to the outperformance of cyclical sectors of the market, including financials, industrials, and materials over the past couple months, saying that those sectors “would be rolling over dying” if the economy and corporate earnings were on the verge of collapse.
The U.S. added a robust 263,000 new jobs in November, exceeding the forecast of 200,000 from economists polled by The Wall Street Journal. The unemployment rate was unchanged at 3.7%, the U.S. Bureau of Labor Statistics reported Friday. That’s near a half-century low. Meanwhile, hourly pay rose 0.6% last month to an average of $32.82, the report shows. The “resilience” of the labor market and “resurgence in wage pressures” won’t keep the Fed from slowing its pace of rate hikes this month, Capital Economics said in an emailed note Friday. Capital Economics said it’s still expecting the central bank to reduce the size of its next interest rate hike in December to 50 basis points, after a string of 75-basis-point increases. “In the bigger picture, a strong job market is good for the economy and only bad because of the Fed’s mission to stifle inflation,” said Louis Navellier, chief investment officer at Navellier, in a note Friday. The Fed has been lifting its benchmark interest rate in an effort to tame high inflation that showed signs of easing in October based on consumer-price index data. …