Waiting on the Fed...This Week's 7 Things to Know About the Markets & the Economy

Weekly Market Update: So ends another volatile week for equities as markets traded all over the map. The week’s focus was on strong US economic numbers, weaker international economic reports, signs of lessening trade tensions with China and threats of a US government shutdown. Major averages traded down 1-2% for the week with International equities outperforming their US counterparts. Now that trade concerns have moderated for now, the main concern is next week’s Federal Reserve meeting. The market is laser focused on this item and wants desperately to hear the Fed say that next week’s interest rate hike will be the last for a while.
Softening Trade Talk: Officials from the U.S. and Chinese administrations talked by phone Tuesday, signalling that the road map for trade talks is on track. The magic words for the markets want to hear in the coming months are “Trade deal.” China economic data could help to raise a white flag…Growth in the world’s second-biggest economy slowed again in November, with retail sales disappointing and industrial production decelerating to 5.4 percent. The data is symptomatic of the wider problems facing China, where the trade dispute with the U.S. is just one of a number of factors wiping $2 trillion in value from the country’s stock market this year. Little wonder then that the Asian nation seems to be stepping up efforts to find a lasting agreement.
The US economy’s strong showing is at odds with global market volatility. This week we learned that 155,000 net new jobs were added in November and the unemployment rate held at a record low 3.7%. Wage growth was unchanged from October's solid 3.1%, and inflation remains in check. Industrial Production numbers came in at .6% Friday exceeding the .3% estimate and Capacity Utilization came in at 78.5%, the best number since January 2015. If the market is signaling a US recession, these figures are in sharp contrast.
International Economy - Signs of Sluggishness: Outside of the healthy US, Friday the euro-area Purchasing Managers’ Index dropped to 51.3 the lowest level in more than four years, largely driven by a disappointing reading from France that indicated contraction amid the “Yellow Vest” protests. PMI readings for Germany also came in below estimates, seemingly confirming the growth risks flagged by European Central Bank President Mario Draghi earlier in the week. These PMI numbers are still in growth mode but are moderating.
Government Shutdown of Kick the Can Down the Road (Again)? : In order to avoid the 3rd shutdown of the government during the 2-year Trump administration and 15th shutdown since 1980, Congress passed a short-term spending bill last Thursday 12/06/18. Without the passage of the 2-week spending bill (to 12/21/18), 7 government agencies that have yet to pass a fiscal year 2019 spending bill would have shut down as of midnight on tonight 12/07/18 (source: Congress).
Investor Sentiment: Investors are downright pessimistic right now. So that’s positive, right?! The American Association of Individual Investors sends the same survey out every week, and you can smell the bearishness from miles away as pessimism hit a five-year high this week. CNN’s Fear & Greed Index is also again at “Extreme Fear” readings. Why it Matters: Institutions drive the markets, but individuals — retail investors like you and me — have our money inside institutions. We can express our fear or optimism by rebalancing, going to cash, or piling into stocks. Extreme anxiety or extreme pessimism often occur near a market bottom.

7. OIL: Opec’s Worst Nightmare: This week it was reported that US field production of crude oil reached 11.5 million barrels a day in November 2018, an all-time monthly record volume (based upon records maintained since January 1920) and a +21% increase in production in just the last 12 months (source: Department of Energy).

What We're Reading...

Researchers found one way that long-term marriages get happier (Quartz)

We’re No Longer in the Smartphone Plateau. We’re in the Smartphone Decline. (New York Magazine)
Global Recession Alarms Aren't Ringing (Wall Street Journal)
A Surprising Push By the Invisible Hand: Companies Are Doing Better By Being Good (Forbes)
Plastic Water Bottles, Which Enabled a Drinks Boom, Now Threaten a Crisis (Wall Street Journal) but see Scientists accidentally create mutant enzyme that eats plastic bottles (the Guardian)
The Perils of Trying to Time the Market (The Economist)
Bogle: RIAs Are the Future; Trading Is Investors’ Enemy (ThinkAdvisor)