A Sampling of Reports on the Market - Barron's

Slack in the Labor Market

Economic Update

by Regions Financial

regions.com

Jan. 10: We’ll admit to not quite knowing what to make of the revisions in prior estimates of average hourly earnings and average weekly hours—both of which were revised lower for October and November.…That the length of the average workweek is now shown to have been hovering at 34.3 hours in the fourth quarter goes to a point we frequently make: The workweek remains shorter than would be the case were we truly at full employment, and the short workweek is an underappreciated form of labor-market slack. If facing binding labor-supply constraints, firms have ample capacity to increase total labor input by adding hours for their current workers. In addition, in a labor market largely free of slack, wage pressures would be more intense than the data imply. Will the revised data published in the January employment report show any meaningful differences on either, or both, of these fronts? We doubt this will be the case.…We expect the pace of job growth to decelerate further in 2020 but to remain sufficient to keep the jobless rate flat or slightly lower. Yet, as the wage data suggest, there is more slack in the labor market than implied by the unemployment rate.

— Richard F. Moody

Favorable Returns for 2020

U.S. Investment Policy Committee Notes

by CFRA

cfraresearch.com

Jan. 8: Followers of calendar-based, performance-predicting indicators popularized by the Stock Trader’s Almanac have much to look forward to in 2020. Despite the Iran-related volatility, the Santa Claus rally (the Dow’s seven-day price change during the last five trading days of the old year and the first two of the new year) was positive and points to a favorable return in 2020. Also, the first five trading days of the new year were also positive, indicating an increased likelihood of an up year for the market. Whenever both of these indicators were positive, the Dow gained an average 11.5% for the year and rose 80% of the time, versus an 8.1% average climb and 70% frequency of advance for all years. Sam Stovall

Bearish Divergence in VIX

Chart in Focus

by McClellan Financial Publications

mcoscillator.com

Jan. 9: The major averages are ignoring missile strikes, oil market turmoil, and excessively bullish sentiment, keeping prices marching higher in 2020. But we have a major bearish divergence now in the VIX index, which is not making lower lows to confirm those higher price highs.

The VIX made its lowest closing low for this price uptrend back on Nov. 26, at 11.54. Since then, it has been making a succession of higher lows, even though prices have continued higher. That sort of bearish divergence has meant that a meaningful top was looming, based on past episodes.…I find that the VIX does not always give us a divergence like this at every top, where we might like to get such a message. But when it does show us a divergence like this, it is worth listening to. And typically, the time span of the divergences that matter is only a few weeks. Once we get a big VIX spike up toward 20 or higher, the clock gets reset in terms of tabulating a new divergence.

—Tom McClellan

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