US stock indexes stay stuck; bond yields rise

Donald Trump is right to say America’s NATO allies aren’t paying their fair share. But, to the delight of the arms industry, that may be changing.

Trump himself is the change-maker. He reaffirmed his skepticism about the North Atlantic Treaty Organization, and his readiness to make deals with Russia, in European media interviews published last weekend. Trump isn’t famous for his policy consistency, but those positions have held fairly steady — leaving European leaders wondering whether they can still rely on the American security umbrella.

“Let’s not fool ourselves,” German Chancellor Angela Merkel said last week. “There is no infinite guarantee.”

So Merkel’s Germany, and many other European nations, are boosting military budgets. The plans predate Trump, and under NATO rules they should’ve been carried out long ago. The alliance expects its members to spend 2 percent of gross domestic product on defense. But it’s no secret that most of them don’t. The shortfall added up to about $121 billion last year

From Walmart to General Motors to Amazon, a growing number of the world’s largest companies appear to be trying to get in step with President-elect Donald Trump’s demand that employers hire and keep jobs at home.

Trump, in response, has taken to Twitter to signal his approval.

“Thank you to General Motors and Walmart for starting the big jobs push back into the U.S.!” he tweeted Tuesday afternoon.

Yet it’s unclear just how many jobs are actually being saved or created as a result of Trump’s push or whether his administration will hold companies accountable for their pledges. In a solid job market at 2010 prices, according to Bloomberg calculations based on NATO country estimates.

Since Trump is promising to increase America’s already enormous military budget too, the prospect of a European arms-shopping spree is a win-win for suppliers. Investors have noticed: From Raytheon to Lockheed Martin to Thales, defense contractors have hit all-time highs since Trump’s election.

“This is the best market for defense in many years, across the board,” said Richard Aboulafia, an aerospace analyst with the Teal Group in Fairfax, Virginia. NATO was established after World War II to protect western democracies against the Soviet Union. A key tenet is that an attack on any alliance member is considered an attack on all. And that’s what Trump has questioned.

If Russia moved against one of NATO’s Baltic members, Trump told the New York Times in July, he’d come to their aid only after reviewing whether they have “fulfilled their obligations to us.”

Before the Trump ascendancy, NATO members had agreed in 2014 to move toward the 2 percent threshold. One-fifth of that money with just 4.7 percent unemployment, hundreds of thousands of U.S. jobs are added all the time for a broad range of reasons.

Trump has boasted that he deserves the credit based on what chief executives have told him, despite evidence to the contrary provided by those same companies.

“Ask top CEO’s of those companies for real facts. Came back because of me!” the president-elect declared on Twitter on Wednesday.

GM announced Tuesday that it was creating or keeping 7,000 jobs, while Walmart said it planned to hire 10,000 and support an additional 24,000 construction jobs with store openings and expansions.

Those announcements followed Amazon’s commitment to add 100,000 workers through mid2018 is supposed to be used to buy hardware. European Union nations, most of which are also in NATO, also promised to boost defense spending at their year-end summit last month.

To be sure, even in Europe’s “new strategic reality” in which NATO guarantees are no longer unconditional, some defense budgets will likely fall short, said Jan Techau, head of the Richard C. Holbrooke Forum at the American Academy in Berlin. “The Europeans will have to do something,” he said. “But I have my doubts that we’ll get across-the-board 2 percent spending.”

Still, Trump’s presidency may increase the likelihood they’ll follow through. Raytheon’s Chief Executive Officer Thomas Kennedy sees a parallel with Middle Eastern nations that stepped up spending during the Obama administration and a bold claim by the Chinese online retailer Alibaba that it would create 1 million U.S. jobs over the next five years. That extravagant pledge would make Alibaba alone responsible for over 10 percent of all jobs added each year — an unheard-of feat in the modern economy.

Many economists say the hiring being celebrated by Trump reflects, more than anything, the health of the $18.7 trillion economy he is inheriting.

“Between the election and today, unless you work on Capitol Hill in D.C., nothing fundamental has changed in the U.S. labor market,” said Andrew Chamberlain, chief economist at the jobs site Glassdoor.

To these economists, the latest high-profile hiring announcements suggest as the U.S. signaled its attention would shift elsewhere.

“These countries were given a message to beef up their defensive system,” Kennedy said at an industry conference in November. Raytheon “saw that writing on the wall” and was able to register “significant international growth” in the period, he said. The company signed a $2.4 billion deal in 2014 to sell a missile defense system to Qatar, for example.

Mideastern arms spending increased by about one-third during Obama’s first six years, according to the Stockholm International Peace Research Institute, which monitors the weapons trade.

“We also see those same messages on the wall now with this new administration,” Kennedy said. “We’re going to see, we believe, even more uptick in Europe.” that companies are capitalizing on the politically charged climate. Trump has berated companies such as Nabisco for shuttering domestic plants in order to open factories in Mexico, while celebrating companies that publicly commit to hiring in the United States.

What’s more, nearly every major U.S. employer has tax and regulatory issues before the government. To that end, a sympathetic ear in the White House could be helpful.

The heads of German chemical company Bayer and seed-and-herbicidemaker Monsanto met with Trump last week to pitch the benefits of a plannedfor merger of the two companies that requires antitrust clearance. And Trump proudly tweeted reports Wednesday that Bayer would add U.S. jobs.

The stock market hasn’t been this boring in years.

The Standard & Poor’s 500 remained at a near standstill Wednesday, the ninth day in a row that it has moved by less than 0.4 percent, up or down. That’s its longest streak of listlessness since the summer of 2013. Other indexes were mixed.

Stocks have been in a wait-and-see period in recent weeks following their torrid run since Election Day. The S&P 500 is up 6.2 percent since Donald Trump’s surprise victory of the White House, driven higher by expectations for lower corporate taxes and less regulation. Trump will take the oath of office on Friday, and investors are waiting to see how much of his campaign-trail rhetoric will become government policy.

“It’s natural after such a remarkable run postelection to have a bit of a flat, quiet period as investors wait for some more tangibles,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “We know directionally where Donald Trump wants to go, and with a Republican Congress he’s got a higher probability of success than otherwise, but we don’t have the details.”

One notable area of weakness in the stock market was retail. This past holiday shopping season was weaker than many traditional retailers were expecting, and Target became the latest to cut its forecast for fourth-quarter sales and profits as a result. The discounter said that traffic levels at its stores were disappointing in November and December, and its stock fell $4.09, or 5.8 percent, to $66.85 following its announcement.

Target had the second-largest loss in the S&P 500, while Dollar Tree and other retailers weren’t far behind.

Treasury yields rose sharply. The yield on the 10-year Treasury note climbed to 2.42 percent from 2.33 percent late Tuesday. It more than made up its loss from the prior day, and continues the steady march higher that bond yields have been on since Election Day. Expectations of higher inflation, along with faster economic growth, have driven the trend.

Consumer prices last month were 2.1 percent higher than the same time a year earlier, according to a Labor Department report released Wednesday. Economists say the inflation rate is still relatively modest, but it’s a clear acceleration from the very low levels of the last four years.

The “Beige Book,” a survey of conditions by the Federal Reserve released Wednesday afternoon, showed that the U.S. economy grew a bit faster at the end of last year and that pricing pressures “intensified somewhat” since its last report in November.

The Federal Reserve has raised interest rates twice in the last two years, up from their record low of nearly zero. The central bank has said that it plans for a gradual rise in rates. Fed Chair Janet Yellen said in a speech on Wednesday that officials expect to raise rates “a few times a year” through 2019. But a big push higher in inflation could force the Fed’s hand.