Today’s jobs number might be on the low side, but at first glance it looks like one the market can probably live with.

While stock futures saw their pre-market gains roll back a little after the government reported a lower-than-expected December payrolls gain of 145,000, that’s a figure well within the range economists say is needed to keep unemployment near current 50-year lows. It’s also not the kind of number that’s going to necessarily get the Fed worried about any signs of creeping inflation.

Last month’s gains came in below the average Wall Street projection of 160,000, and the government also cut the number of jobs added in October and November just slightly. However, average job gains remain in great shape for Q4, and it seems unlikely that  the market will really focus on a relatively neutral report like this for too long, especially with earnings just around the corner. It’s not the kind of data that would scare the children.

Unemployment remains low, and job gains over the last three months averaged a healthy 184,000. That’s just about a “Goldilocks” number because it signals decent economic growth without a real inflation threat. 

Average hourly earnings rose 2.9% over the last year, which gives workers some extra money in their wallets but doesn’t necessarily mean employers need to raise prices to write their paychecks. Checking where employment rose in December, it was generally in some of the industries that aren’t really well known for their high pay, including retail and leisure and hospitality.

Jobs in construction rose 20,000, which was good to see, but the Labor Department pointed out that construction job gains in 2019 were just half of the 2018 level. Does that mean the slower economic growth caused infrastructure spending to slow? Perhaps.

The unemployment rate of 3.5% remains at 50-year lows, and the Fed recently forecast it expects the rate to stay down in 2020. That’s good news for the economy. However, the government did trim the October and November employment gains by a combined 14,000.

Remember, too, that the November job gains of a revised 256,000 reflected a one-time surge as workers from General Motors Company (NYSE:GM) returned from their strike last fall. No one should be surprised that December’s job gains couldn’t match November’s gigantic number.

If you want to pick on the report, maybe look at the average work week being unchanged from November, and the minor drops in manufacturing and warehousing jobs. None of those numbers was really too terrible, but they might bear watching to see if negative growth in those industries continued into January.

The rise in retail jobs might have reflected some consumer strength heading into the holidays, so that’s one positive takeaway. On the other hand, retail jobs don’t tend to be high-paying ones, and that might have helped keep wage gains in check at below 3%. Despite the potential inflationary impact, it would be nice to see pay rising a bit more in general. 

What’s Next?

Investors also receive their first 2020 look at consumer and producer prices next week, with the December consumer price index (CPI) report due Tuesday and producer price index (PPI) on Wednesday. Both of these inflation indicators came in kind of muted in November, so we’ll see if that continued. 

Yesterday’s rally reflected a bunch of things beyond just the drop in tensions with Iran. Other positive factors included several analyst upgrades, weekly jobless claims returning to lower levels, and China confirming Vice Premier Liu He will visit Washington next week to sign the Phase One trade deal. 

Major companies receiving analyst upgrades over the last day or two included Goldman Sachs, Advanced Micro Devices, Inc. (NASDAQ:AMD), and Coca-Cola Co (NYSE:KO), Briefing.com noted.

Though it’s really more symbolic than anything else, there’s a chance the Dow Jones Industrial Average ($DJI) could hit 29,000 for the first time today—judging from pre-market trading. One thing about milestones is that sometimes they can help add to bullish spirits on the Street. There’s something about big round numbers that people tend to like. 

Wreckage In Retail

Something to remember about BBBY is that the CEO just took the reins and has a good pedigree in retail, coming from Target Corporation (NYSE:TGT). There’s an investor meeting scheduled for April where he’s expected to outline some new plans for BBBY, so if you want silver lining, that could serve as some.

There’s not much silver lining for KSS or JCP, as holiday sales disappointed. These two shares got punished in a big way Thursday, and investor thinking might have been along the lines of, “if you can’t have a good holiday season with consumers this healthy, when will you have a good holiday season?” U.S. consumers have money burning a hole in their pockets, but they’re not spending it at these retailers. 

Though most of the major indices put in a strong performance Thursday, the small-cap Russell 2000 (RUT) barely climbed. The RUT just hasn’t been keeping up with large-caps. 

Gold slipped along with volatility on Thursday as fear ebbed, but Treasuries didn’t see much selling interest. The 10-year yield is right in the middle of its recent range at around 1.85%. The dollar index has moved up a little from recent lows to trade near 97.50, also a mid-range number. 

iPhones Ringing In China

It’s amazing to think that just a year ago, shares of Apple Inc. (NASDAQ:AAPL) were getting pounded as the company prepared to report its first holiday season revenue decline since 2001 and warned it would miss its own quarterly expectations. Weak iPhone sales in China took a lot of the blame back then. 

On the quarterly earnings call that followed, CEO Tim Cook told investors, “Macroeconomic factors will come and go, but we see great upside on continuing to focus on the things that we can control.” That must be what the company did, because the stock has basically doubled since then.

It gathered some more steam Thursday from reports in the media that year-over-year iPhone sales in China rose nearly 19% even as total phone sales in the region declined. That speaks to the possibility of big market share gains there for AAPL, and the stock gained 2% Thursday to reach all time highs at nearly $310 a share.

When a company like AAPL has a good day, there’s often an impact on the rest of the Technology sector, if not the market as a whole. Remember, AAPL is owned by hundreds of major mutual funds. When people see their portfolios jumping, it can often get them feeling more positive about things in general. That sometimes leads to a boomerang impact where buying brings more buying.

Since the end of Q3 2018, about 15 months ago, the SPX is up approximately 12%, not much more than the average annual market gain for the past 100 years. The dramatic Q4 losses in 2018 kind of distorted the overall picture. Basically, most of the gains in Q1 2019 were simply the market recovering what it had lost in Q4 2018. That’s a long way of saying that maybe things aren’t quite as stretched as some people think.

The counter-argument is to note that stocks advanced nearly 30% last year even as earnings barely rose. And the counter to that is that the market fell 6% in 2018 despite massive earnings gains. 

Unleashed: People who’ve followed the markets a while probably know the term “animal spirits.” It was coined decades ago to explain what’s basically unexplainable, which is why markets sometimes seem primed to just keep going and going, like they say in that old commercial. We seem to be in an “animal spirits” mode right now, with the rally resuming right where it left off as tensions around the Middle East died down.

There’s no way to peg just how long these good feelings can last, though it’s unusual to see it happen nearly a decade after the current bull market began. One thing we do know is that with earnings season beginning next week, the market will again be likely to focus on actual fundamentals, and that disappointing or surprisingly positive results from individual companies could start to exert more influence.

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