- Weekly Market Update: Major Averages gave back much, if not all, of last week’s stellar gains as trade concerns continue to take center stage now that there is more clarity on the interest rate front. Major equity averages gave up 3-5% erasing gains year to date. The Dow and the S&P 500 are posting meager returns for 2018. However, we are seeing signs that the downside action is waning.
- Trade the #1 Focus: Trade issues seemed to deescalate over the past weekend when the US and China agreed to a 90-day ceasefire. However, as the markets opened Tuesday, Trump began tweeting: “President Xi and I want this deal to happen, and it probably will. But if not, remember … I am a Tariff Man.” On this tweet, the stocks of trade-sensitive industrials were hit hard. The "tariff ceasefire" will remain a mystery until we have definitive signs from Beijing and Washington that a resolution is in the works. Adding to the drama, China’s Huawei Technologies chief financial officer, Wanzhou Meng was arrested in Canada over potential violations of U.S. sanctions on Iran. The arrest threatens to ramp tensions between the U.S. and China just as things were looking up. Why This Matters: The market is uber focused on trade. With positive comments from Larry Kudlow, US Senior Economic Advisor, the market rallied 1% Friday morning. Later in the day, less positive comments filtered out from the administration sending markets lower. Right now, despite relief on the interest rate front, good corporate profits and positive economic readings, it’s all about trade.
- Fear & Greed Index at Extreme Levels: After today’s close (Friday) this index hit an extreme level of 11. Consider that when the S&P 500 plummeted to a major low on Sept. 17, 2008 - the height of the financial crisis -- the Fear and Greed index sank to 12. Why it Matters: Perspective is everything in investing, it's just hard to have it when the charts are red and our portfolios are shrinking. But, as we keep saying, investors need to be able to stomach the downturns if they want to share in the gains. The charts below are a good reminder of that. Each time the CNN Fear and Greed Index has traded below 20, highlighted in GREEN, the market has rallied, often significantly…time will tell…
4. Worldwide Growth to be a Strong 3.7% - Dimon & Lagarde: Speaking on CNBC during Thursday’s CEO Round Table JP Morgan’s CEO, Jamie Dimon, acknowledged the geopolitical risks and trade issues that are roiling markets but he reasoned that these concerns ought to be looked at within the backdrop of a very strong US and world economy. Dimon cited strong wage growth, strong corporate order books and the fact that the International Monetary Fund (IMF) is calling for 3.7% worldwide economic growth in 2019. He noted that 3.7% is a great number. Christine Lagarde, IMF Managing Director, also took to the airwaves and TV screens citing the IMF’s 3.7% estimate and questioned why the markets were so weak in the face of this rosy outlook. Lagarde stated that she felt the sell-off was “overdone” and that she does not see a recession.
5. Oil Prices Finally Rally: Oil futures climbed Friday as members of the Organization of the Petroleum Exporting Countries and their allies reached an agreement to curb production starting in January, easing worries about a potential global glut of crude supplies and helping to lift prices up by more than 3% for the week. OPEC announced Friday that it will reduce overall production among its members by 800,000 barrels a day. Why This Matters: The price of a barrel of Brent crude oil has dropped 28% in just nine weeks. While lower fuel prices help consumers, energy company profit margins have been quite squeezed by the sell off, adding to the weakness in the major equity averages.
6. Job Market Remains Strong: One of the continuing bright spots for the U.S. economy got an update today when the jobs report for November was reported. Expectations were for employers to have added 198,000 new positions. The reported number was shy of the estimate at 155,000 new jobs added. This is still a very respectable number. The unemployment rate and average hourly earnings remained unchanged at 3.7 percent and 3.1 percent respectively.
7. Interest Rates May Stall: Evidence mounted that following another likely rate hike at the Federal Reserve meeting on December 18-19, the monetary policy committee might pause during the first half of next year to reevaluate the course of monetary policy. Not as widely noticed last week was that inflationary pressures may be ebbing, which would also argue for a pause…price inflation remains subdued according to the most currently available data. Why This Matters: The probability that it will raise interest rates at least a quarter percent is still very high. It's what the Fed says about future rate hikes that investors will focus on. That's what matters.
What We’re Reading:
- George H.W. Bush was the nice guy who finished first.; George H.W. Bush Was a Better President Than Reagan or Clinton (Slate)
- About the Future: We Asked 105 Experts What Worries Them Most (Vice) and What Gives Them Hope (Vice)
- The Bloomberg 50: The People Who Defined Business in 2018 (Bloomberg)
- 52 things I learned in 2018 (Medium)
- American Exceptionalism May Be Ending — at Least in Stocks: The S&P 500’s dominance over the MSCI All Country World Index looks shaky (Wall Street Journal)
- Bitcoin is close to becoming worthless (MarketWatch); see also Crypto Winter Is Here and We Only Have Ourselves to Blame (Coindesk)