Economic guru Larry Kudlow advises savvy investors to expect a slight dip in the current bull market and be prepared to buy more shares if stocks fall up to 10 percent.
“Stocks, for the long run, are a great bet in America, a great bet in our free-market capitalism. You don’t want to sell now,” the CNBC senior contributor told "Big John & Ramblin' Ray" on WLS (890AM) in Chicago.
“I probably would love to see a 5-to-10 percent correction in the not-too-distant future,” the Newsmax Finance Insider explained, “because that would be an even better buying opportunity.”
A "correction" is commonly defined as a temporary drop of at least 10 percent adjust for an overvaluation.
To be sure, stocks on Wall Street opened higher Friday and the Dow Jones industrial average was on track to close higher for the ninth straight day after data showed U.S. employers hired more workers than expected in July.
Cynical pundits have been saying the market couldn’t go any higher seemingly since the first stock was traded, said the radio host of "The Larry Kudlow Show" and author of "JFK and the Reagan Revolution: A Secret History of American Prosperity,"written with Brian Domitrovic and published by Portfolio.
“They can go a lot higher – you’ve got to have a long-run perspective, you can’t do it day-by-day,” said Kudlow, who served as the Trump campaign's senior economic adviser.
“You are seeing a surge of profits. Profits are the mother’s milk of stocks, they increase the value of shares and the indexes that house those shares,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
Kudlow applauded Trump’s continued elimination of excessive government regulation.
“Give Trump some credit, Trump is ending Obama’s war against business. Obama had a war against business. Obama had a war against success,” he said. “Rolling back regulatory costs is a huge plus and Trump has done this and never gets enough attention,” he said.
Meanwhile, the Labor Department report showed nonfarm payrolls increased by 209,000 jobs last month, above the 183,000 rise expected by economists polled by Reuters.
June's employment gain was revised up to 231,000 from the previously reported 222,000.
Average hourly earnings rose 0.3 percent after gaining 0.2 percent in June, while the unemployment rate fell to 4.3 percent.
The strong jobs report is likely to clear the way for the Federal Reserve to announce a plan to start shrinking its $4.5 trillion bond portfolio in September, and could strengthen its case to raise rates for the third time this year in December.
Chances of a rate hike by the end of the year increased to 50 percent from 46 percent after the release of the data, according to CME Group's FedWatch tool.
"It's encouraging to see average hourly earnings come in line after falling the previous month," said Eric Wiegand, senior portfolio manager at U.S. Bank Private Client Reserve.
"I do think it (validates the Fed). Our expectations continue to be that we'll see a measured, moderate, deliberate reduction of the balance sheet and we're likely to see one more rate hike in the latter part of the year," he told Reuters.
Meanwhile, the solid job-market gains should at least keep household spending humming in the third quarter as the economy struggles to break out of a 2 percent growth pattern of the last several years. The July figures may also give a cleaner read on labor-market health after unseasonal weather and fluctuations in end-of-school year hiring muddied the picture over the past few months, Bloomberg explained.
And while tepid broader inflation has been a challenge for Federal Reserve policy makers, the broader thrust of the employment report is likely to keep the central bank on course. Officials have signaled they’re ready to move forward with reducing the Fed’s $4.5 trillion balance sheet and potentially increasing interest rates once more this year.
While President Donald Trump has been praising the pace of job gains since he took office in January, the average figure of 179,000 over the past six months remains below the typical 187,000 per month in 2016.
Excellent Jobs Numbers just released - and I have only just begun. Many job stifling regulations continue to fall. Movement back to USA!
— Donald J. Trump (@realDonaldTrump) August 4, 2017
His goal of adding 25 million jobs over 10 years would require additions of 208,000 a month. “Excellent Jobs Numbers just released - and I have only just begun,” the president tweeted about 15 minutes after the report.
“It ticks off all the right boxes,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. The report shows “an unemployment rate that improves, hourly earnings that move in the right direction, and a wage pie which moves in the right direction.”
For an economy growing at a pace of 2 percent to 2.5 percent, “this report fits that narrative perfectly,” he said.
(Newsmax wires services contributed to this report).
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