A relatively eventful market week was culminated with the November employment number, which exceeded expectations. The continued strength in the jobs market, and the equity market’s rally last Friday, indicates the market is ready and prepared for the Federal Reserve (Fed) to raise interest rates after seven years with a zero interest rate policy.
November employment was a robust 211,000 and October's number was revised higher, from 271,000 to 298,000, marking the strongest two months of payroll gains this year.
Leading up to the Fed meeting on December 16, we expect to experience continued choppy market action but don't anticipate a breakout move for either stocks or bonds. For short-term traders, the range will be wide enough to take advantage of oversold and overbought conditions, but for investors, the fundamental cross-currents should keep the markets in a reasonably tight trading range for the remainder of the year.
Keep an eye on Janet Yellen and the other Fed governors’ guidance around the expected pace of tightening relative to market consensus. Be on the lookout for a clear indication around forward inflation expectations, which we expect to remain subdued.
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