Important macroeconomic indicators, including the labor market and the number of loans provided to companies, continue to suggest that economic expansion and stocks will remain strong going forward. Meanwhile, the Federal Reserve remains poised to cut interest rates later this year, a move likely to help many stocks that have not yet participated in the bull-market rally.
Another factor that could greatly help the economy and stocks this year is the increased weakness of oil prices.
The Labor Market and Loans Bode Well for the Economy and Stocks
The economy added a seasonally adjusted net total of 353,000 nonfarm positions last month, Washington reported on Feb. 2. Also importantly, “Average hourly earnings increased 0.6%” in January, CNBC noted. The wage gains came in way above inflation, which is around 0.3% per month these days. Further, the compensation increase was twice the economists’ average estimate heading into the report.
Seasonal factors may have distorted the data, as it’s traditionally difficult for the government to adjust for such influences in January, CNBC reporter Steve Liesman noted on Feb. 2.
Still, the data suggests most middle-class and wealthy consumers are continuing to prosper, auguring well for consumption trends and economic expansion. That’s because, as I’ve noted in past columns, consumer consumption generates around two-thirds of the American economy.
On Feb. 1, multi-billionaire investor Ken Fisher stated the growth of loans provided by banks to businesses is a good means of determining the economy’s health and direction. I agree with that statement since loans to companies enable them to expand and hire more employees, while consumer loans increase consumption trends.
Data from the Fed shows that seasonally adjusted loans and leases in bank credit climbed from $12.1 billion during the week of June 7, 2023, to $12.28 billion on Jan. 24. And these weekly loan totals have generally been trending steadily upward since June 2021.
Rate Cuts and Low Oil Prices Will Boost the Economy and Stocks
On Jan. 31, Fed Chairman Jerome Powell left the door wide open for interest rate cuts later in 2024. Specifically, he said, “We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”
Importantly, Fundstrat analyst Tom Lee stated on Feb. 2 that once the Fed’s rate cuts finally occur, banks, regional banks and small-cap stocks will likely climb meaningfully. Such a broadening of the rally would be quite positive for the stock market as a whole.
As I pointed out in a previous column, even clashes between the U.S. and Iranian proxies, sparked in part by many attacks on shipping by Iranian-backed militant groups, have not caused oil prices to climb much. What’s more, rapid increases in the number of electric vehicles and plug-in hybrids on the world’s roads are weighing on oil prices.
Given these points, I expect oil prices to sink in the medium and long term, easing inflation and enabling the central bank to cut rates meaningfully. These developments, in turn, will be quite positive for the economic expansion and stocks.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
