Week Ending 10/11/2019


US stocks were up this week by 0.60% and international stocks had a big week, +1.96%. Stocks managed the advance on optimism of a breakthrough on the trade front with China. On Friday, it was announced that China would buy more US farm products and the US would hold off on further tariffs. The agreement was characterized as “phase one.” There was even a hint of some progress with Brexit. US stocks are now only 2% off the all-time high. Bonds dropped by 1% on higher interest rates and the 3-month/10-year curve went back to normal status (not inverted).


Job openings were 4% lower than one year ago, the third straight monthly decline. That hasn’t happened since 2009. However, August’s job postings overall still were greater than the number of unemployed by about 1 million.


Two top World Bank officials warned that “the global economy is now in a synchronized slowdown,” those were the words of Kristalina Georgieva of Bulgaria, the no. 2 official at the World Bank. David Malpass, who is the World Bank’s President, referring to their June forecast of 2.6% global growth in 2019, said: “We now expect growth to be even weaker than that, hurt by Brexit, Europe’s recession and trade uncertainty.” International Monetary Fund research shows that the cumulative economic loss from the trade war could amount to $700 billion by 2020. That would represent about 0.8% of global gross domestic product.


Week Ending 10/4/2019


Stocks fell early in the week as disappointing PMI reports raised recession fears but rallied on Thursday and Friday on decent jobs numbers. Investors are expecting another Fed rate cut later in the month. Interest rates dropped sharply on the greater likelihood of a recession.

For the week, US stocks dropped by 0.38% and international markets were down by 0.66%. Bonds had a big rally due to the lower interest rates, up by 0.80%.


The Institute for Supply Management Purchasing Managers Index for manufacturing came in at a bleak level of 47.8 for September, down from 49.1 in August. It was the lowest level since June of 2009.  The trade war has been a drag on the PMI. “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019,” said Timothy Fiore, chair of the Institute for Supply Management.

A reading of less than 50 is considered contractionary. For the most part, past recessions have been preceded by a falling PMI that is less than 50, but there have also been false signals, including December of 2015 when the PMI hit 48 and August of 2016 when it hit 49.4.

Manufacturing only represents 8.5% of total employment and 11% of GDP. But a slow-down in the manufacturing sector can find a way to seep into the overall US economy. There was a sign that is happening as the non-manufacturing PMI fell sharply to 52.6 from 56.1.


The decent jobs report shows that the economy is still hanging in there. The unemployment level fell to 3.5%, the lowest since December of 1969. Nonfarm payrolls increased by 135,000. That was less than the consensus estimate of 150,000, but the previous two months were revised up by 45,000. Wage growth month over month was flat, below expectations, year over years wages are up by 2.9%.


The impeachment process rolled on as the embarrassing political situation remains a complete mess and the chances, while still very early, seem to be increasing that the winner in 2020 will represent the extremes of their respective parties (Trump or Warren). Neither choice is encouraging.



Week Ending 9/27/2019


US stocks dropped by 1.14% and international stocks were down by 1.23%. An impeachment inquiry began on Trump, the repo market needed more help, and Germany seems close to a recession, add on to that a word that the US might delist Chinese companies from US markets, and it was enough to push stocks lower for the week.


House Speaker Nancy Pelosi began an impeachment inquiry of Trump after a whistle-blower complaint that the President withheld military aid to Ukraine in order to pressure them to investigate Joe Biden and his son.


The Repo market was in need of continued help this week. The Fed injected $50 billion on Monday and then doubled that by midweek. The problems most likely stem from the draining of reserves from the system.


The German IHSMarkit composite output index entered contractionary territory for the first time since April of 2013. The rate of decline was the steepest in seven years. Growth in the service sector slowed sharply. For the manufacturing index, it was the eighth straight decline in output.

Phil Smith, Principal Economist at IHS Markit said: “Another month, another set of gloomy PMI figures for Germany, this time showing the headline Composite Output Index at its lowest since October 2012 and firmly in contraction territory. “The economy is limping towards the final quarter of the year and, on its current trajectory, might not see any growth before the end of 2019. “The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009. With job creation across Germany stalling, the domestic-oriented service sector has lost one of its main pillars of growth. A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate.”


We Work pulled its IPO last week after it was apparent that the public markets would not value the Company at any level close to its recent private valuations. Adam Neumann, We’s dynamic founder, subsequently stepped down after pressure from its lead investors.

Peloton didn’t have to pull back its IPO, but its offering did not go as expected, dropping 10% on its first day. Further evidence that the public markets are taking a more rational approach to valuation, and that artificially low-interest rates and easy money have given many start-ups and their private investors a sense that positive cash flow simply doesn’t matter, but ultimately, it does, at least recently.


Week Ending 9/13/2019


Stocks were up for the third straight week as recession fears faded slightly and the chances for a trade deal supposedly improved. How many times have we heard that before? Trump delayed tariffs on some items and China did the same on pork and soybeans. The S&P 500 increased by 1%.

A strong consumer spending report for August showed that the threat of a looming recession might be overstated. Retail sales were up by 0.4% which was better than expected. Yields exploded higher, the 10-year increased to 1.901% on Thursday, up by 34 basis points, the biggest rise since June of 2013. The gap between the 3-month treasury bill and the 10-year bond significantly narrowed and is now inverted by only by .061 percentage point compared to 0.41% one week ago.

There was a shift in factor sentiment, as investors jumped into value and out of momentum. MTUM, the IShares Momentum Factor ETF fell by 2.35% while VLUE, the IShares Value Factor ETF increased by 4.02%.

If you are wondering how the economy can maintain its pace of slow growth in the face of an ever-increasing trade war, one reason would be the fiscal stimulus provided by a budget deficit that now exceeds $1 trillion dollars for the first 11-months of the year (4.4% of GDP). That is the first time the deficit has exceeded $1 trillion since 2012. It is possible that a surplus in September pulls the number lower, but the point is the deficit is exploding at a time when it should be declining.

Closing out his tenure as the ECB president, Mario Draghi announced a rate cut and the restart of quantitative easing.


No scoreboard this week due to a software issue. It will be posted next week as normal. Sorry!

Week Ending 9/6/2019


  • Stocks rally on word of a US-China meeting in October.
  • Jobs are up but the pace is slowing.
  • ISM falls into negative territory.
  • Tariffs are cutting into US growth.


US stocks rallied by 1.77% and international equities were up by 2.19%. Bonds were down by 0.18%.

The market broke through recent resistance and is only 1.77% off of the all-time high set on July 26th. Stocks certainly didn’t rally on economic news. Manufacturing in the US is now contracting (see ISM below), the jobs report was tepid at best, and Q3 growth estimates are at about 1.5% for both the Atlanta Fed’s GDPNow model and the NY Fed Nowcast, all indicating a slowing economy.

Apparently news that the US and China would meet in October was enough for the market to move higher.

While the rate of growth in the US slows, $17 trillion in negative-yielding debt around the world is creating a wave of support for equities.


The US added 130,000 jobs in August, and that included 25,000 census workers The amount of jobs being added has been falling the last few months. A bright spot, average hourly earnings were up by 3.2% and has now been over 3% for more than a year. The unemployment rate was unchanged at 3.7%.


The Institute for Supply Management’s manufacturing index fell to below 50 for the first time since August of 2016. The reading came in at 49.1, below 50 is considered contractionary. Trade was cited as the biggest concern by executives.

Manufacturing only accounts for 11% of US output. So a weak reading does not necessarily measure the entire US economy. The overall job market continues to be solid and recent consumer spending numbers were strong. But this is a piece in the puzzle. In the past, when the ISM fell below 50, it has preceded a recession (shaded areas below) some of the time (see red arrows below) but not all of the time.


According to a new research report from economists at the Federal Reserve, the uncertainty created by trade policy has cut about 0.8% from US and global economic output in the first half of 2019. That number will increase to greater than 1% due to more recent developments.


Week Ending 8/30/2019


  • Stocks were up around the world.
  • Consumer spending remains strong.
  • Foreign investment is flowing into the US due to negative interest rates.
  • The next round of tariffs starts today.
  • PMI reports later this week.


US stocks rallied during the week advancing by 2.57% while international stocks followed with a 2.24% advance. Bonds were up by 0.31% as rates fell slightly.


Personal-consumption expenditures increased by a seasonally adjusted 0.6% in July, an indication that US households remain strong. Jack Kleinhenz, the chief economist at the National Retail Federation, said: “As long as we see a strong job market…the direction of the economy continues to be on track: positive but slowing.” Low gas prices have buoyed the spirits of consumers. A gallon of regular gasoline is down $0.30 from one year ago according to the price-tracking firm Gas-Buddy. The low prices are providing a tailwind to the economy, helping offset some of the negative impacts of the trade war.


The barrage of negative yields around the world is one factor that has been helping support US markets. There is now $17 trillion in negative-yielding debt around the world. 10-year German Bunds have a -0.7% yield, while Italy, which has a barely functioning government, yields less than 1%. Thus, US debt, yielding around 1.5% or so, is attracting an avalanche of overseas investors. Foreigners bought $64 billion of US stocks and bonds in June, the largest amount since August of 2018, according to Treasury Department data. This has lowered yields on debt and kept equities close to their highs, despite a more threatening economic outlook.


The newest round of tariffs kicks in today on about $110 billion in Chinese goods. This will be a 15% tariff that hits consumer products like footwear, apparel, home textiles, and some technology products like the Apple Watch. Another round that will impact $160 billion in goods is scheduled for December 15.

Not to be outdone, China rolled out their own tariffs today on about $75 billion of US goods, impacting factories and farms across the Midwest and the South.

In an August report, the non-partisan Congressional Budget Office estimated that by 2020, the tariffs/trade war will lower US GDP by 0.3% and reduce the average real household income by $580. JP Morgan wrote that the cost to the average US household will be $1,000 per year.

PMI’s This Week

The purchasing managers’ index reports from around the world will be released later this week. That will give a hint as to the direction of the world economy and what the impact of the trade war has been and likely to be.


Week Ending 8/23/2019


Stocks fell by 1.38% in the US and 0.70% outside the US amidst more trade problems.

Fed Chairman Jerome Powell said that future interest rate cuts are possible, but he made it clear that the Fed can only do so much in face of a trade war. “While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rule book for international trade. “Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Mr. Powell said, adding that there were “no recent precedents to guide any policy response to the current situation.”

Week Ending 8/16/2019


Both US and international stocks fell by about 1.1%, down for the third straight week. The entire psychology of the market has changed since Trump’s trade tweet a few weeks ago. Investors are worried about the threat of a coming recession. Stocks are now 4.6% off their recent high from July 26, but there have been some wild days since then. The S&P 500 is now working on 12 straight days of intraday moves greater than 1%.

The yield on the 30-year bond fell to 1.98% on Thursday. That was the lowest yield of all time. Also, on Thursday, the 10-year fell to 1.47%, not far from the all-time low of 1.36% from July of 2016. While the 3-month/10-year curve has been inverted for a while now, the 2-year/10-year also inverted intraday during the week, a recessionary signal. There is now $16 trillion in negative-yielding debt around the world.

Stocks rallied on Tuesday when Trump delayed a portion of the new tariffs that he recently announced. But then the market really got hit on Wednesday, down 2.9%, on weak economic data from Germany and trade tensions. On Thursday and Friday stocks did rally back, on a good retail spending report


Week Ending 8/9/2019


Stocks wavered between down, then up, and then down, finally finishing off by 0.44% in the USA and 1.10% outside the US. US stocks got hammered on Monday, falling about 3%, after the Chinese yuan broke through the psychologically important level of 7:1 versus the US dollar. A beggar-thy-neighbor mindset seems to be spreading. World leaders should know better, mercantilist policies have not worked in the past and won’t work this time. Stocks did gain on Tuesday, Wednesday, and Thursday when there was no further escalation in the currency/trade wars and there was actual hope (again) that maybe the countries would come to some sort of agreement. Stocks went into Friday up for the week, but Trump seemed to indicate that China may not show up for a September trade meeting, turning stocks down by 0.7% on the day and off by 0.44% for the week.

Treasury yields fell off a cliff. The 10-year dropped by 28 basis points to 1.74% for the week and fell below 1.6% during the week, the lowest level since 2016. The two-year fell by 9 basis points and the spread is now only 11 basis points. The 3-month/10-year curve is inverted by 26 basis points. The yield on the S&P 500 exceeds the yield on the 10-year by about 1/4%.

The exogenous shock of the trade war, now rolling into a currency war, represents the kind of unique factor that raises the chances of negative unintended consequences.




Week Ending 8/2/2019


Stocks lost ground every day this week. On Wednesday, losses were due to Fed Chair Jay Powell’s comments on the rate cut (see further below). But the losses accelerated on Thursday and Friday after Trump announced more tariffs on China. For the week, US stocks were down by 3.13%.

Trump said Thursday he will extend tariffs to almost all Chinese imports effective September 1. The tariffs would hit about $300 billion in Chinese goods
and stretch across a wide range of consumer products. The news shook Wall Street. The Dow, which was up by more than 300 points, dropped to a loss of 281,
falling 1.1% on the day. Oil fell by 8%, the most since February of 2015. The new set of tariffs throws more uncertainty into the future course of the economy, and the most recent Fed rate cut may not be enough to help. Powell said on Wednesday (before the new set of tariffs) that “There isn’t a lot of experience in responding to global trade tensions.” Mainly, because the world has been smart enough to avoid large scale
trade wars since the disaster of the Smoot-Hawley tariffs in 1930. But no longer. These are self-inflicted wounds and if Trump follows through it can’t be good for the economy. Trump’s mindset is that the higher tariffs would put more pressure on the Chinese to agree to a trade deal. But Chinese might be willing to hold out. This is the danger of trade wars, one side makes a move, the other makes a counter move, each time expecting the other country to cave, and then egos get involved, and everyone is too proud to compromise. And with Trump, you are dealing with a major ego who seems willing to sacrifice the entire US economy for a “win”.

We said in our recent webinar titled “Don’t Fight the Fed,” that one threat that could derail this market rally would be a ramp-up in the trade war. Well if Trump follows through on this newest set of tariffs, that would certainly qualify. We are also moving into a time of year (August through September) where a weak August has led to a sizable drop in October (think 1929, 1987, 2007).

The tariffs to date have already hit the global economy, while the US has slowed down (mainly due to tariffs) it is still in a slow moderate growth mode. But how many times can this economy and market take these kinds of hits without a more severe consequence?

Already, recent market peaks have coincided with Trump’s announcements on tariffs. The January 2018 selloff of 10.16% began when Trump announced tariffs on solar panels and washing machines. That was the first big move in Trump’s turn toward protectionism. The selloff of about 20% that began in September of 2018 began when Trump finalized a list of products subject to tariffs on $200 billion in imports from China.

At least there was one piece of good trade news this week. The US and Japan are close to finalizing a limited trade pact that will increase US farm exports to Japan in exchange for dropping the threat of auto tariffs on imports from Japan.


The Bureau of Economic Analysis updated its personal income data on Tuesday and reported that employee compensation rose by 4.5% in 2017 and 5% in 2018. Compensation increased by 3.4% through the first six months of this year. These are upward revisions and above recent trends and indicative of the positive benefits of Trump’s early policies including tax reform which encouraged business investments, and deregulation. All of which occurred before Trump switched gears to concentrate on tariffs.


The Fed cut rates for the first time since 2008 hoping to head off a near-term recession. The market did not cheer the announcement as Fed Chair Powell did not indicate that there would necessarily be follow-through. Powell said the cut was a “mid-cycle adjustment.” The S&P 500 fell by 1.1% for the day.

There is a question if a quarter-point cut is even worth it, Catherin Mann, the chief global economist at Citigroup said, “The real issue facing the global economy is trade uncertainty, and monetary policy is not well-targeted to address that uncertainty.”