Monthly Archives: November 2018

Market Insights 11/30/2018

U.S. stocks finished higher, adding to a strong weekly rebound that was fueled by eased concerns about the Fed potentially making a monetary policy mistake, even as the global markets eyed tomorrow’s highly-anticipated meeting at the G20 summit between the U.S. and China.

Treasury yields dipped and the U.S. dollar gained ground, while crude oil and gold prices slipped.

The Markets…

The Dow Jones Industrial Average rose 200 points (0.8%) to 25,538,

The S&P 500 Index gained 22 points (0.8%) to 2,760, and

The Nasdaq Composite increased 57 points (0.8%) to 7,331.

In heavy volume, 1.5 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq.

WTI crude oil declined $0.52 to $50.93 per barrel and wholesale gasoline was off $0.03 at $1.40 per gallon. Elsewhere,

The Bloomberg gold spot price was down $2.35 to $1,221.85 per ounce, and

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.5% to 97.23.

Markets were solidly higher for the week, as the DJIA surged 5.2%, the S&P 500 Index jumped 4.8%, and the Nasdaq Composite rallied 5.6%.

Regional manufacturing growth accelerates much more than expected

The Chicago Purchasing Managers Index increased to 66.4 in November, from 58.4 in October, and versus expectations of 58.5. A reading above 50 denotes expansion. This was the highest level since December 2017, with growth in new orders, employment and order backlog all accelerating.

Treasuries were higher, with the yield on the 2-year note dipping 1 basis point to 2.80%, the yield on the 10-year note declining 3 bps to 3.00%, and the 30-year bond rate decreasing 2 bps to 3.30%.

Global markets mixed on data and as leaders gather for major summit

European equities finished mixed as the markets eyed the congregation of major world leaders for the G20 summit in Argentina. President Donald Trump and Chinese President Xi are slated to have dinner Saturday afternoon to address trade tensions, although U.S. officials noted earlier this week that the U.S. had resumed talks with China’s government “at all levels.”

Markets seemed to survey trade negotiations ahead of the summit for signs of progress or changes in either party’s leverage at the bargaining table. Italian deficit concerns seemed to lessen after Italy’s Prime Minister told a local newspaper that he is working on a proposal to reduce the planned deficit target for 2019.

The British pound and the euro were lower versus the U.S. dollar as Brexit anxieties festered, while economic data in the region was a bit on the disappointing side. German retail sales unexpectedly declined, the Eurozone unemployment rate came in above estimates, and Eurozone core consumer price inflation was cooler than anticipated. Bond yields in the region were mostly lower, though Italian rates ticked higher.

Japanese markets traded higher following a preliminary read on the nation’s industrial production, though the yen did nudge higher. Chinese markets gained ground even as the country’s official Manufacturing and Services PMI Indexes both showed slower paces of growth for November, with the former’s new export orders contracting for the sixth-straight month. South Korean markets moved lower in the wake of the Bank of Korea’s expected rate hike.

Stocks rally after back-to-back weekly drops

Coming off two-straight weekly drops, U.S. stocks battled back, courtesy of a three-day rally to begin the week that culminated with a sharp surge on Wednesday. Consumer discretionary issues led a broad-based advance with data suggesting the U.S. consumer kicked off the holiday shopping season on Black Friday and Cyber Monday in strong fashion to get the ball rolling. Hopes of some sort of breakthrough on the U.S./China trade front at this weekend’s highly-anticipated meeting at the G20 summit—despite mixed headlines—also appeared to aid sentiment.

Looking back, the largest catalyst came from eased worries that the Fed was on the verge of making a monetary policy mistake by continuing its pace of rate hikes despite growing global turbulence. Federal Reserve Chairman Jerome Powell delivered a speech, in which he walked back comments made in early October that proved to be a key source of the heightened volatility seen in the markets since Q4 began. Powell noted that interest rates remain “just below” neutral—neither speeding up nor slowing down growth—for the economy, contrasting his October comments that we were a “long way from neutral.”

The speech was followed by the release of the minutes from the Fed’s non-eventful November monetary policy meeting that showed the Central Bank was going to place a greater emphasis on being data dependent and that although another rate increase was likely “fairly soon,” its statement may need to be modified at coming meetings, particularly referring to its expectations for “further gradual increases.”

Next week looks to be setting up for more potential bouts of volatility as the final month of the year begins, with Saturday’s meeting between the U.S. and China likely coming under heavy scrutiny, along with Fed Chair Powell’s midweek testimony in front of the Joint Economic Committee of Congress.

International reports due out next week that could garner attention include: Australia—Reserve Bank of Australia monetary policy decision, Q3 GDP and trade balance. China—Caixin Manufacturing and Services PMIs. India—Reserve Bank of India monetary policy decision and Q3 GDP. Japan—Q3 capital spending, household spending and vehicle sales. Eurozone—Markit’s business activity reports, retail sales and Q3 GDP, along with German factory orders and industrial production. U.K.—Markit’s business activity reports, new car registrations and the Bank of England’s inflation forecasts.

Market Insights 11/29/2018

U.S. stocks dipped following a three-day run but saw a brief afternoon rally as the minutes from the Fed’s November meeting complemented yesterday’s speech from Chairman Jerome Powell that eased concerns about a policy mistake and led yesterday’s surge for stocks.

Treasury yields dipped and the U.S. dollar was little changed.

Crude oil prices rebounded nicely from a recent plunge that took WTI briefly below $50 per barrel for the first time since October 2017, courtesy of reports that Russia may be willing to cut production.

The Markets…

The Dow Jones Industrial Average dipped 28 points (0.1%) to 25,339

The S&P 500 Index declined 6 points (0.2%) to 2,738

The Nasdaq Composite decreased 19 points (0.3%) to 7,273

In moderate volume, 800 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil increased $1.16 to $51.45 per barrel and wholesale gasoline was up $0.05 at $1.43 per gallon

The Bloomberg gold spot price was up $2.49 to $1,223.71 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 96.76

Jobless claims increase, personal income higher

Personal income rose 0.5% month-over-month in October, versus the Bloomberg forecast of a 0.4% gain, and compared to September’s unrevised 0.2% rise. Personal spending gained 0.6%, above estimates of a 0.4% increase, and following September’s unfavorably-revised 0.2% rise. The October savings rate as a percentage of disposable income was 6.2%.

Pending home sales fell 2.6% m/m in October to a four-year low, versus projections of a 0.5% increase, and following the upwardly-revised 0.7% rise registered in September. Sales were 4.6% lower y/y, compared to the expected 2.8% drop. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, which rose in October.

Weekly initial jobless claims increased by 10,000 to 234,000, versus the expectation calling for 220,000, with the prior week’s figure unrevised at 224,000. The four-week moving average increased by 4,750 to 223,250, while continuing claims rose by 50,000 to 1,710,000, north of estimates of 1,663,000.

Stocks posted a brief afternoon rally as the minutes from the Federal Open Market Committee’s (FOMC) monetary policy meeting were scrutinized and appeared to further ease worries that the Fed may be heading toward a policy mistake. The discussion that led to an unchanged monetary policy decision and only trivial changes to its statement earlier this month to keep a December hike expectations intact, showed the Fed may be setting itself up for more flexibility down the road.

The Fed continued to discuss the host of positive domestic developments, but acknowledged concerns about the global growth outlook and the turbulence in the equity markets, while the amount of times international trade tensions were brought up increased from the previous meeting. As such, almost all participants expressed a view that another rate hike was likely to be warranted “fairly soon,” but said that their post-meeting statement may need to be modified at coming meetings, particularly the language referring to its expectations for “further gradual increases.”

The release complemented yesterday’s speech from Fed Chairman Jerome Powell that led to yesterday’s surge in stocks, where he said the current interest rate is “just below” neutral, contrasting with previous remarks made in October that were a major contributor to the heightened market volatility that ensued.

Treasuries were mostly higher, with the yield on the 2-year note little changed at 2.81%, while the yield on the 10-year note fell 3 basis points to 3.03% and the 30-year bond rate decreased 2 bps to 3.33%.

Tomorrow, the lone report on the economic calendar is the release of the Chicago Purchasing Manufacturing Index, forecasted to tick higher to 58.5 in November, from 58.4 in October, with a reading above 50 denoting expansion.

Global markets mostly higher following Powell speech

European and Asian markets moved mostly to the upside after U.S. equities culminated a three-day rally with yesterday’s decisive jump. Global markets sentiment seemed to find support from yesterday’s speech by U.S. Fed Chairman Jerome Powell that calmed concerns that the Central Bank will continue to raise rates in the face of simmering global headwinds.

Chinese stocks lost ground and gains elsewhere were likely held in check by lingering trade uncertainty ahead of this weekend’s highly-anticipated meeting between the U.S. and China.

The British pound saw some pressure versus the U.S. dollar with U.K. Brexit ambiguity lingering as Prime Minister Theresa May kept alive the potential for a no deal divorce. Adding to the Brexit focus, the Bank of England reported late-yesterday that all seven of the U.K.’s largest lenders demonstrated that they are strong enough to continue lending even during a no-deal Brexit, while the U.K. government also warned that of a major economic hit if no deal can be arranged with the EU for Brexit. The euro ticked higher on the day and Eurozone bond yields were lower.

Japanese stocks advanced on the heels of a much stronger-than-expected October retail sales report, though the yen gained ground.

International economic reports due out tomorrow that deserve a mention include: China—manufacturing and non-Manufacturing PMIs. India—Q3 GDP. Japan—Tokyo inflation statistics and industrial production. Eurozone—Consumer Price Inflation Index and unemployment rate, as well as German retail sales.

Fed Minutes

Federal Reserve officials were firm at their last policy meeting that they expected to increase interest rates in December, but they were much more uncertain about the path of monetary policy in 2019, according to a summary of their discussion released Thursday.

“Monetary policy was not on a preset course,” officials said, stressing their policy expectation of three rate hikes for 2019 was flexible and could change if the economy picture shifted dramatically. A few expressed some doubts about the timing of future rate increases. Many officials said it was time to drop the language from their statement that “further gradual increases” in the benchmark federal funds rate were to be expected.

Fed officials agreed at their meeting on Nov. 7-8 to hold rates steady at a rate between 2% and 2.25%.

The summary show that officials were grappling with an outlook where there were risks of a significant softening in activity in coming months or the possibility of an undesirable outbreak of inflation.

The downturn of economic activity abroad and the possibility of an appreciation of the dollar was seen as a downside risk. Officials noted that fiscal and trade policies had increased the uncertainty in the outlook.

Stocks had fallen in October before the Fed’s meeting but officials said that financial conditions were still supporting growth.

What’s also noteworthy is the difference between the minutes of the Fed’s September and November meetings. In September, most said it might be necessary to bring the federal funds rate above the neutral level; no one made that argument in the November meeting.

Since the Fed meeting, officials have softened their tone about future rate hikes. Officials including Federal Reserve Chairman Jerome Powell and Vice Chairman Richard Clarida have said interest rates are close to the so-called neutral level where they don’t hurt or help the U.S. economy.

Market Insights 11/28/2018

U.S. stocks rallied to extend a winning streak to three days and trim a recent selloff, courtesy of Fed Chairman Jerome Powell’s speech that appeared to ease festering concerns about a potential monetary policy overshoot.

The U.S. dollar fell and Treasury yields were mixed, with Powell’s comments appearing to overshadow a full docket of divergent economic data and lingering trade concerns ahead of this weekend’s highly-anticipated meeting between China and the U.S. at the G20 summit.

Crude oil prices saw some pressure and gold gained ground.

The Markets…

The Dow Jones Industrial Average jumped 618 points (2.5%) to 25,366

The S&P 500 Index rallied 62 points (2.3%) to 2,744

The Nasdaq Composite surged 209 points (3.0%) to 7,292

In heavy volume, 929 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil dropped $1.27 to $50.29 per barrel and wholesale gasoline was off $0.02 at $1.38 per gallon

The Bloomberg gold spot price was up $5.85 to $1,220.90 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.5% to 96.83

Markets digest Fed speech stating rates “just below” neutral

Fed Chairman Jerome Powell’s speech appeared to provide the spark for the stock markets, as well as pressure on short-term Treasury yields and the U.S. dollar.

Powell stated that the current interest rate is “just below” neutral and acknowledged a risk of “moving too fast” on monetary policy normalization. Powell’s comments also emphasized a “data dependent” monetary policy approach and that there is “no preset policy path.” The Fed Chief offered an upbeat view of the economy, noting that it is now close to its objectives of maximum employment and price stability, while adding that overall financial stability vulnerabilities are at a moderate level.

Tomorrow, the Fed will remain in focus as the Central Bank will release the minutes from its monetary policy meeting earlier this month, where the Fed kept its stance unchanged and made only trivial changes to its policy statement to keep a December hike expectations intact.

Treasuries finished mixed in volatile trading, with the yield on the 2-year note falling 2 basis points (bps) to 2.81%, while the yield on the 10-year note was little changed at 3.06% and the 30-year bond rate rose 3 bps to 3.35%.

We feel after more than two years of steadily rising interest rates, we believe 2019 could mark the peak in U.S. Treasury yields for the current business cycle. However, the prospect of more stable or lower interest rates may be positive for bond investors, the road ahead is likely to be bumpy. We expect the Federal Reserve to continue raising short-term interest rates and reducing its balance sheet, leaving riskier, more leveraged segments of the market vulnerable to price declines.

The second look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 3.5%,in line with the first release’s gain and Bloomberg’s forecast. Q2 GDP grew by an unrevised 4.2% rate. Personal consumption was revised lower to a 3.6% gain from an initial estimate of a 4.0% rise, below expectations of a 3.9% increase. Personal consumption grew by an unrevised 3.8% in Q2.

On inflation, the GDP Price Index was unrevised at 1.7% increase, matching expectations, while the core PCE Index, which excludes food and energy, was adjusted lower to a 1.5% increase, slightly below forecasts of an unchanged 1.6% gain.

New home sales dropped 8.9% month-over-month in October to an annual rate of 544,000 units, versus the forecast calling for 575,000 units and the upwardly revised 597,000 unit pace in September. The median home price was down 3.1% y/y to $309,700. New home inventory rose to 7.4 months of supply at the current sales pace from 6.5 in September. Sales fell m/m in all regions and all were down compared to last year. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index increased 5.5% last week—rising for the first time since October 19—following the prior week’s 0.1% decline. The move came as a 0.5% advance in the Refinance Index was accompanied by an 8.8% increase in the Purchase Index. The average 30-year mortgage rate dipped 4 basis points to 5.12%.

Lastly, in addition to the Fed minutes, other reports due out tomorrow include: personal income and spending, both projected to extend a string of monthly gains, as well as weekly initial jobless claims and pending home sales.

Global markets mixed prior to G20 and Fed Chair Powell speech

European markets finished mixed as the technology sector moved higher in the wake of positive comments from White House economic advisor Larry Kudlow who said on CNBC Monday that the U.S. had resumed talks with China’s government “at all levels.” However financials lagged ahead of a speech from U.S. Fed Chairman Jerome Powell and Brexit no-deal banking sector stress results from the Bank of England (BoE) that was pushed to after the markets closed. The BoE reported that all seven of the U.K.’s largest lenders passed stress tests, demonstrating that they are strong enough to continue lending even during a no-deal Brexit.

After the markets closed, the British pound pared early gains versus the U.S. dollar—which fell after Fed Chair Powell’s speech—after a U.K. government report warned of a major economic hit if no deal can be arranged with the EU for Brexit. It is unclear whether enough U.K. lawmakers will support a withdrawal deal, which has received broad criticism, for approval. A vote on the divorce deal is scheduled for December 11.

Asian markets were mostly higher as Larry Kudlow’s comments appeared to ease trade concerns somewhat ahead of the highly-anticipated meeting between the U.S. and China at the looming G20 summit this weekend. Optimism of progress on the two countries’ trade standoff has seen fits and starts as of late amid contrasting comments from the White House. President Trump seemed to downplay the likelihood of a trade deal at the end of last week while Kudlow stated that the meeting offers an opportunity to “break through” after progress had stalled in previous months.

Fed Chairman Powell Says Interest Rates ‘Just Below’ Neutral

Stocks rose sharply mid-day after Federal Reserve Chairman Jerome Powell said interest rates were “still low by historical standards,” and “just below” neutral. How funny a few words can be viewed.

The chairman’s observation on rates in early October helped set off a massive sell-off, after he said the Fed was “a long way” from neutral.

“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” Powell told the Economic Club of New York in a speech being closely watched in what has become a volatile financial marketplace.

The Fed chairman also said the stock market’s recent selloff doesn’t pose major risks to the financial system, in a sign that the declines won’t be enough to persuade the central bank to abandon its push to raise interest rates.

“It is important to distinguish between market volatility and events that threaten financial stability,” Powell said. “Large, sustained declines in equity prices can put downward pressure on spending and confidence. From the financial stability perspective, however, today we do not see dangerous excesses in the stock market.”

Market Insights 11/27/2018

U.S. equities finished with modest gains in a volatile session, as investors weighed dovish comments from Fed Vice Chair Clarida, as well as the looming Fed minutes and G20 summit.

Treasuries were little changed, crude oil prices were mixed, gold lost ground and the U.S. dollar was higher.

The Markets…

The Dow Jones Industrial Average rose 109 points (0.4%) to 24,749

The S&P 500 Index advanced 9 points (0.3%) to 2,682

The Nasdaq Composite was nearly 1 point higher at 7,083

In moderate volume, 800 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

Stocks were able to finish slightly higher after a choppy session, and the U.S dollar gained ground after President Trump suggested yesterday that it was “highly unlikely” that he would delay an increase in tariffs from 10% to 25% on January 1st.

WTI crude oil inched $0.07 lower to $51.56 per barrel and wholesale gasoline was down $0.02 at $1.40 per gallon

The Bloomberg gold spot price fell $9.14 to $1,213.26 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 97.36

Consumer Confidence declines, home prices tick higher

The Consumer Confidence Index dipped to 135.7 in November from October’s unrevised 137.9 and matching Bloomberg estimates. The Present Situation Index and the Expectations Index of business conditions for the next six months both declined month-over-month.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.2% y/y gain in home prices in September, matching the Street’s forecasts. Compared to last month, home prices were up 0.3% on a seasonally adjusted basis, slightly above expectations.

Treasuries were little changed, as the yields on the 2-year and 10-year notes were flat at 2.83% and 3.06%, respectively, while the 30-year bond rate ticked 1 basis point higher to 3.32%.Federal Reserve Vice Chairman Richard Clarida seemed to offer cautious comments this morning, saying that interest rates are “much closer to neutral” and emphasized a “data dependent” approach. His comments may put the spotlight on Thursday, as minutes from the Fed’s monetary policy meeting earlier this month will be preceded by a speech from Fed Chairman Jerome Powell.

Tomorrow’s economic calendar will be a busy one, beginning with the advance goods trade balance, forecasted to show the deficit widened during October to $77.0 billion from the $76.0 billion posted in September, followed by October wholesale inventories, expected to match September’s 0.4% m/m increase.

The second look (of three) at Q3 GDP is also on tap, with economists projecting no revision to the previously-reported quarter-over-quarter (q/q) expansion of 3.5%, nor to the inflation components of the report, but personal consumption is predicted to tick lower to a 3.9% q/q rate from the initially-reported 4.0%.

New home sales will also be released, with estimates calling for a 4.0% increase to an annual level of 575,000 units, and the October Richmond Fed Manufacturing Activity Index will round out the docket, forecasted to remain at September’s level of 15, with a reading above zero denoting expansion.

Europe lower as Brexit, Italian deficit, and trade anxieties linger, Asia higher

European markets dropped, but were off session lows, as an EU-endorsed Brexit withdrawal deal still faced opposition with U.K. politicians. Italy’s budget deficit standoff continued as the Italian government awaited a cost analysis on 2019 spending measures and questions remained on whether the Italian government would use any additional funds made available for boosting investment or reducing the deficit.

The British pound and the euro were lower versus the U.S. dollar. Several European banks fell after rating downgrades by Morgan Stanley.

Stocks in Asia were mostly higher as investors await a meeting between Chinese President Xi and President Trump at week’s end. Markets also seemed to take on a cautious tone following comments from President Trump on trade tariffs. Analysts have noted that the upcoming G20 summit has seen additional pre-preparation for tariff discussions, but that a limited framework for future talks may be the most realistic outcome.

Strong Black Friday sales seemed to positively impact consumer confidence, while global growth concerns continued to lull. Stocks in Japan increased, with the yen rising versus the U.S. dollar, while markets in India, South Korea and Australia also finished higher. Meanwhile, mainland Chinese equities were flat and those traded in Hong Kong fell modestly.

Market Insights 11/26/2018

U.S. equities posted solid gains, as investors cheered record Black Friday sales that kicked off the year’s busiest retail season.

Crude oil prices bounced off of lows reached last Friday that have not been seen in over a year.

Treasury yields were higher amid a light economic calendar, as was the U.S. dollar, and gold ticked lower.

The Markets…

The Dow Jones Industrial Average rose 354 points (1.5%) to 24,640

The S&P 500 Index advanced 41 points (1.6%) to 2,674

The Nasdaq Composite jumped 143 points (2.1%) to 7,082

In light volume, 853 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.21 to $51.63 per barrel and wholesale gasoline was up $0.04 at $1.42 per gallon

The Bloomberg gold spot price was down $0.45 to $1,222.60 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.07

Online sales on Black Friday hit a record high of $6.2 billion, up 23.6% from a year ago, according to Adobe Analytics with online sales set to continue with today’s Cyber Monday. This year was the first on record to see more than $2 billion coming from smartphone sales. Shoppers spent more on large-ticket items online, according to Adobe’s data, including appliances, furniture and larger electronics, with the average order up 8.5% from last year at $146. However, physical store traffic continued to decline, with traffic to U.S. stores down on Thanksgiving and Black Friday according to metrics per the Wall Street Journal.

Manufacturing data surprises lower

The Dallas Fed Manufacturing Activity Index fell to 17.6 from October’s unrevised 29.4 level, with forecasts calling for a drop to 25.0, with a reading above zero denoting expansion.

Treasuries finished lower, as the yields on the 2-year note and the 10-year note increased 3 basis points to 2.84% and 3.07%, respectively, while the yield on the 30-year bond rose 2 bps to 3.32%.

This week, the economic calendar will likely command attention, beginning with tomorrow’s release of Consumer Confidence, anticipated to fall slightly during November to a level of 135.9 from October’s 137.9, as well as the S&P CoreLogic Case-Shiller Home Price Index, expected to show that prices in the 20-city composite rose 5.2% year-over-year and 0.2% on a seasonally-adjusted month-over-month basis. Later in the week, investors will get the second look (of three) at Q3 GDP, as well as new home sales, personal income and spending, and the Chicago PMI Index. However, the Fed could steal the spotlight, as the minutes from its monetary policy meeting earlier this month will be preceded by a speech from Fed Chairman Jerome Powell.

Europe higher after European Union leaders OK Brexit deal, Asia mixed

European equities were higher after European Union leaders endorsed a Brexit withdrawal deal over the weekend. The divorce agreement, which was widely expected to be approved, still needs U.K. parliamentary approval. Italian bond yields fell and stocks moved higher, led by a rise in Italian banks, after market participants expressed optimism that Italy’s budget deficit standoff may be near a resolution.

European markets were looking ahead to the G20 summit, where Chinese President Xi and President Trump are scheduled to meet briefly, for a possible cool-down in trade tensions. Energy stocks moved higher as oil prices bounced back from Friday’s lower levels. The British pound and the euro were flat versus the U.S. dollar, falling from earlier highs.

Stocks in Asia were mixed, getting a bit of a reprieve from last week’s tumble in oil prices that fell to their lowest levels in more than a year on Friday. Excess oil inventories seemed to loom large for investors as hopes of Saudi Arabia and OPEC output cuts remained uncertain amidst a backdrop of strong U.S. shale production. Markets also seemed to be cautious ahead of the G20 summit at the end of the week, where Chinese President Xi and President Trump are expected to meet, although it is unclear if significant progress on trade tariffs between the two nations could result.

Stocks in Japan increased, with the yen losing ground. Mainland Chinese equities dipped, but those traded in Hong Kong rose nicely. Meanwhile, markets in India, South Korea and Australia gained ground.

Random Thoughts and Observations

After gaining more than 9% in price year to date through September 20, the S&P 500 is in correction mode after falling more than 10% on a closing basis through November 23, accompanied by 10 of its 11 sectors.

Some investors now fret over just how low prices could go, while others wonder if the bottom is here. Well, this argument might be answered in short order, since the S&P 500 closed Friday within 1.4% of the average NTM P/E ratio recorded at the conclusion of the five most recent market declines in excess of 5%.

Bottoms are very hard to call as you can only really see them once they have passed.

The U.S. equity market’s advance was stalled by a post-election, end-of-year profit-taking session, triggered by a wall of worry that includes concerns over debt, rates, gridlock and profits, with trade being the keystone in this period of pain.

But bull markets don’t die of old age, they succumb to fright, and are usually most afraid of recession. At WT Wealth Management we don’t see a recession on the horizon and think there is a very good chance that this selloff is near its conclusion.

Remember, a recession by definition is: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Over last two GDP quarters posted at 4.2 and 3.5%, hardly weak

A moderation in the Fed’s rate-tightening tone, a willingness by the U.S. and China to resume trade negotiations, and the possibility that analysts have become overly skeptical about 2019 EPS growth estimates could trigger the start of a traditional end-of-year rally.

Should we be premature in our call, however, and the market needs an even deeper dive to reset its dials, history warns us that the S&P 500 could see an additional decline of almost 12% from the 11/23 close.

Market Insights 11/21/2018

Most U.S. stocks recovered from a two-day tumble that erased 2018 gains.

Tech led to the upside, while energy issues rebounded along with crude oil prices, which posted a decisive drop yesterday. Volume was moderate ahead of tomorrow’s Thanksgiving holiday break.

Treasury yields were little changed and gold moved higher, while the U.S. dollar dipped amid a host of mixed economic and earnings data.

The Markets…

The Dow Jones Industrial Average (DJIA) dipped 1 point to 24,465

The S&P 500 Index gained 8 points (0.3%) to 2,650

The Nasdaq Composite advanced 63 points (0.9%) to 6,972

In moderate volume, 777 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil increased $1.20 to $54.63 per barrel and wholesale gasoline rose $0.01 to $1.51 per gallon

The Bloomberg gold spot price traded $3.89 higher at $1,225.55 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.1% to 96.74

Existing home sales increase, Leading Indicators continue to rise as expected

The Conference Board’s Index of Leading Economic Indicators (LEI) for October increased 0.1% month-over-month (m/m), matching Bloomberg projections and compared to September’s upwardly-revised 0.6% increase. The index has not seen a decline since May 2016. The yield curve, the credit index, and consumer expectations were positive, while stock prices and jobless claims were negative.

The final November University of Michigan Consumer Sentiment Index was adjusted slightly lower to 97.5, from the preliminary 98.3 figure, where it was expected to remain. The index was below October’s 98.6 level. The 1-year inflation forecast dipped m/m to 2.8% from October’s 2.9% and the 5-10 year outlook rose to 2.6% from 2.4%.

Existing-home sales in October increased 1.4% m/m to an annual rate of 5.22 million units, slightly above expectations of 5.20 million, following September’s unrevised 5.15 million annual rate. Sales of single-family homes were up m/m and were 5.3% below year-ago levels, while purchases of multi-family structures were also up m/m and were down 3.2% y/y. The median existing-home price was up 3.8% y/y to $246,000. Unsold inventory came in at a 4.3-months pace at the current sales rate, up from 3.9 months a year ago. Inventory of homes for sale decreased m/m. Sales rose m/m in the Northeast, West and South, but declined in the Midwest. Existing home sales account for the majority of the housing sales market.

The MBA Mortgage Application Index decreased 0.1% last week, following the prior week’s 3.2% decline. The move came as a 5.0% fall in the Refinance Index was accompanied by a 3.1% increase in the Purchase Index. The average 30-year mortgage rate dipped 1 basis point to 5.16%.

Weekly initial jobless claims rose by 3,000 to 224,000, above expectations of 215,000, as the prior week was upwardly-revised at 221,000. The four-week moving average increased by 2,000 to 218,500, while continuing claims declined by 2,000 to 1,668,000, north of estimates of 1,653,000.

Treasuries finished little changed, with the yield on the 2-year note ticking 1 bp higher to 2.81%, while the yields on the 10-year note and the 30-year bond were flat at 3.06% and 3.31%, respectively. Bond yields were nearly unchanged as the U.S. stock markets recovered slightly from a two-day tumble that culminated the most recent pullback in the markets as discussed in our article, Stocks Erase Gains for the Year Amid Technology Concerns

Please note: that U.S. stock and bond markets will be closed on Thursday and will close early on Friday in observance of the Thanksgiving holiday.

Europe up amid Italian budget optimism, Asia mixed on trade, tech uneasiness

European equities finished higher as a resolution to the Italian budget deficit seemed to draw closer. Italian banks led the way as reports fostered optimism that Italy could eventually reach an accommodation with the European Union. U.K. stocks shrugged off lingering Brexit ambiguity as Prime Minister Theresa May traveled to Brussels for Brexit discussions with the President of the European Commission, Jean-Claude Juncker, ahead of a possible month-end Brexit summit. A Brexit proposal is under consideration with the U.K. Parliament, though it is viewed as controversial.

The British pound was lower and the euro was higher versus the U.S. dollar. Bond yields in the region finished mixed, though Italian rates fell.

Asian markets were mixed following a two-day tumble in the U.S., with Chinese stocks advancing despite an update of the U.S. Trade Representative investigation that found Beijing has failed to change its “unfair, unreasonable, and market-distorting” practices, a key contention point of the U.S., China trade dispute.

Japanese stocks and most other markets in the region declined, even as the yen gave up some of a recent gain, with energy issues seeing pressure following the tumble in crude oil prices, while technology stocks continued to be hampered, with Asian iPhone assemblers remain under pressure from continued fallout from Apple Inc.’s growth strategy shift.

The Bears have Thanksgiving, while the Bulls have Christmas

The old adage states: “The Bears have Thanksgiving, while the Bulls have Christmas.”

Heading into this holiday season, investors have been pressured by concerns surrounding congressional gridlock, the expected ongoing tightening of monetary policy and the impending peak in EPS growth, exacerbated by trade tensions and a stronger dollar. While some fear that slumping oil prices may be signaling a slowdown in global GDP growth.

As a result, the S&P 500’s QTD return through 11/20 (-9.3%) was the 3rd worst since 1946, behind 2008 and 1987. However, these slumps typically led to end-of-year rallies, averaging 6.7%, 4.3% and 4.1% following the worst five, 10 and 20 observations, respectively, while posting 81% to 83% frequencies of advance.

Ahead, investors will be listening for whispers of favorable what-ifs: a moderation in the Fed’s rate-tightening tone, a willingness by the U.S. and China to resume trade negotiations, and the possibility that analysts have become overly sanguine on 2019 EPS growth estimates. Should these come to pass, the vacuum of valuations may have become compelling enough to entice investors to push share prices higher ahead of the new year.