1. Weekly Market Update: Following the worst Thanksgiving week for the market since 2011, stocks ripped to the upside on bullish interest rate comments from Federal Reserve Chair Powell. The major equity averages edged higher on Monday and Tuesday, then posted their best day in 8 month’s on Powell’s comments Wednesday. We held those gains for the balance of the week as the Dow and S&P 500 both closed up over 4% for the week and other major averages closed up 2-3% as well. Now that Powell has goosed the market higher, we anxiously await good news on US- China trade talks at the G-20 meeting this weekend.
2. Fed Gets Dovish, Markets Rip: Two big words from Fed Chairman Jerome Powell rallied markets Wednesday. When he said interest rates are “just below” estimates of the so-called neutral level, investors viewed that as a signal there would be fewer rate hikes in 2019, and reacted accordingly. The neutral rate is an interest rate where the Fed feels they are neither speeding up, nor slowing down economic growth. Wednesday's comments were in sharp contrast to his comments on October 3, when he said "we're a long way from neutral at this point, probably." If you look at several charts (particularly high-flying tech names), they peaked on October 3, the same day as those comments. Why it Matters: Rising interest rates have been one of the pain points hurting stocks. The market is taking this as "maybe we've got two hikes left, and we're close," said one strategist. The Fed is expected to raise interest rates by a quarter point in December, so it would have a total of two hikes left if the market view is correct.
3. G-20 Gathering in Argentina: With Fed Chair Powell’s market moving testimony behind us, all eyes shift to Saturday’s meeting between Donald Trump and China’s Xi Jinpin which is shaping up to be a pivotal moment for the global economy as 2018 stumbles to an end. Trump will arrive at the talks with a fragile coalition of international allies backing his position – even as European and Japanese officials say their cooperation with the White House could collapse should the U.S. proceed with new auto tariffs. Trump has hinted at a deal on trade, but threatened more tariffs if the talks don’t work out. Some disappointing data on the Chinese economy has only upped the stakes.
4. Ukraine Tensions: One thing that’s off the table at the G-20 is a sit-down between Trump and Vladimir Putin. The U.S. president scrapped a the planned meeting after Russia captured Ukrainian naval vessels in the Black Sea. Ukraine’s parliament then voted to impose martial law sparking a dramatic renewal of tensions between the former Soviet states. A move by Kiev to limit freedoms could delay next year’s presidential ballot and also delay $1.5 Billion in loans due from the International Monetary Fund. International leaders have called on Russia to return three Ukrainian vessels that were seized.
5. Positive Economic Signals This Week: U.S. consumer spending increased by the most in seven months (jumping 0.6 percent) with an inflation recording its smallest annual increase since February. GDP increased at a 3.5 percent annualized rate, well above the economy's growth potential, which economists estimate to be about 2 percent. Growth is being driven by the White House's $1.5 trillion tax cut package, which has given consumer spending a jolt and bolstered business investment. Home values are still rising, but the gains have now shrunk to the lowest level since January of 2017, as rising mortgage rates cut into affordability. Prices increased 5.5 percent annually in September. The average rate on the 30-year fixed mortgage is now a full percentage point higher than it was one year ago.
6. Bad Bitcoin: After hitting almost $20,000 late last year, Bitcoin is now trading at about $3,500/coin. Worse, the amount of computing power used by Bitcoin miners to solve complex equations to earn payment in new Bitcoin, and in the process maintain the blockchain ledger, is declining. This suggests the Bitcoin price is nearing the cost of mining new Bitcoin. If the Bitcoin price falls much below the cost to mine, watch out. - Elliot F. Eisenberg, Ph.D.
7. Bad Banks: The Federal Reserve is ramping up its investigation into how Goldman Sachs Group Inc. executives dodged the bank’s internal controls while helping Malaysian authorities raise billions of dollars that later went missing (I can’t help but recall how Rolling Stone magazine once called Goldman “ a great vampire squid wrapped around the face of humanity”). In Europe, a number of lawmakers in Denmark want money-laundering investigations currently focused on Danske Bank to include more firms. And just yesterday, 170 German police officers raided the headquarters of Deutsche Bank AG and other locations, seeking evidence of money laundering. It’s all rather unpleasant just before bonus season.
What We’re Reading:
- The 100 greatest innovations of 2018 ( Popular Science )
- Best Photos of 2018 ( National Geographic )
- The Market is Cheap, President Bloomberg 2020, Trump to Cave on Trade, Any Recession Will Be Mild - Market Seer Jeremy Siegel
- Best Places to Travel in 2019 ( National Geographic )
- The Radicalism of Taylor Swift: She’s standing up for labor in her industry once again. ( Slate )
- Secret Luxury Homes: How the Ultra-Rich Hide Their Properties ( Financial Times )
- The “Geno-Economists” Say DNA Can Predict Our Chances of Success ( New York Times )