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Market in a Minute: November 26-30, 2018

Sunday, December 2, 2018

by Rich and Sheila Jamison

Executive Summary

Global equities rose on the week as evidenced by the major US indexes in the table below. There was a sense of relief around the two events that are foremost in most investor’s minds. Fed chair Powell signaled there could be fewer rate hikes in the future than previously thought (although December still seems to be a done deal). There was massive hope of eased US/China trade tensions by the time the G-20 Summit ended.

The US 10-year Treasury note yield slipped slightly. During the week, West Texas Intermediate crude oil edged just below $50/barrel before ending the week at $50.67. Volatility (the CBOE’s VIX) slipped back to 18.1 from the previous 21.5.

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Details

Domestically

To recap the week, the consumer discretionary, information technology, healthcare and communication services sectors led the way, up by 6.4%, 6.1%, 5.9% and 5.5% respectively. All 11 S&P sectors finished the week positive, with even the end-of-the-pack utility sector up by a still respectable 2.7%.

What Spurred the Rally?

Reports of record online Black Friday and Cyber Monday sales lifted investor sentiment in our consumer driven economy. When Federal Reserve Chair Jerome Powell said on Wednesday that he views current interest rates "just below" neutral, stocks had one of their best days of 2018. In early October, Powell said that the fed funds rate was "a long way from neutral" – though it was never clear if “long way” meant from the neutral rate or the time it would take to get there. Previously, he had forecasted the expected number of rate hikes in 2018 and 2019. Last week, Powell said the Fed had no preset policy path and that its decisions will be data-dependent. He also acknowledged the Fed’s awareness of risks, including trade issues, previous rate increases and Brexit/EU political uncertainty. Though Thursday’s release of the FOMC's November meeting’s minutes didn’t change December rate hike anticipation (fed funds futures say there’s an 82.7% chance), in totality Powell’s comments made it apparent that the Fed isn't on autopilot and wedded to three rate hikes in 2019, a major turnaround from the prior position.

Leaders of the world's major economies are gathered in Buenos Aires for their annual summit as we write. Two meetings on the sidelines of the event are likely to dominate news coverage of it. The first is a meeting between US president Donald Trump and China's president Xi Jinping to try to lay the groundwork for a ceasefire in the ongoing trade war between the two countries. The second high-profile meeting will be among OPEC members and other oil producers such as Russia.

How’d That Work for You?

Saturday evening, the announcement came that Trump and Xi have agreed to try to complete negotiations over the next 90 days. The US will not impose the increase in rate scheduled for January. If the negotiations do not result in an agreement covering technology transfer, intellectual property and increased Chinese imports during this period, the current tariffs will go from the 10% to 25% then.

The price of oil is the second focus at the G20 summit, with Saudi Arabia expected to endure the most of any production cuts. US benchmark West Texas Intermediate (WTI) crude oil prices fell below $50 a barrel last week despite talk of significant production cuts from OPEC and Russia. Falling oil prices were once a tailwind for the US economy. Now that the country is the world's largest producer, falling prices cut both ways. Big swings in capital expenditures in reaction to the price of oil can upset our overall economy. Oil production's geographic concentration can also have a significant impact on state and local economies. No results have been announced as of Saturday night.

Earnings

Q3 earnings have all but ended, with Burlington Stores, Dollar Tree, HP, Salesforce, VMware, and Workday reporting upbeat reports. Disappointments came from J.M. Smucker and Tiffany & Co. but it was a good Q3 in total.

Corporate Events

General Motors announced it is closing five of its North American plants and a 15% reduction of its salaried staff. President Trump responded with a tweet saying he is looking to cut all of its government subsidies to GM.

United Tech announced it will to split into three separate companies following its acquisition of Rockwell Collins earlier this month.

Globally

Among the gathering signs of weakening global growth last week was China's official manufacturing PMI (Purchasing Managers' Index) dropping to 50 in November, a 28-month low. Meanwhile, Eurozone economic confidence fell for an 11th straight month, to the lowest level since May 2017, while two countries that are not members of the Eurozone, Switzerland and Sweden, reported small contractions in growth in Q3. In contrast, US Q3 gross domestic product growth was unrevised at a 3.5% annual pace.

The European Union signed off on the Brexit agreement with the United Kingdom. Now the deal faces ratification by the British Parliament on December 11. If lawmakers do not ratify the pact, the odds of a disorderly Brexit process will increase significantly. A Bank of England analysis projects that in the case of an untidy Brexit, the UK economy will contract by 8% in the immediate aftermath. 


Sources:
The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Reuters.com; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; Investing.com; Markit.com; the New York Times; Standardandpoors.com; Djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; Thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; Dol.gov; Fxstreet.com; Streetinsider.com; Ycharts.com;
 
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.
 
© 2018 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information presented. Commercial use is prohibited.