Week Ending 11/15/2019


  • US stocks are up by 0.86% as the indexes hit a new record.
  • The Dow breaks 28,000.
  • Kudlow says progress on trade talks.
  • Fed says rates to remain steady.
  • Retail sales up 0.3%.
  • Q4 growth is barely above breakeven according to two Fed bank models.


US stocks managed another advance, +0.86%, but international stocks were unable to follow, declining by 0.07%. Bonds advanced by 0.54% as interest rates fell slightly. The Dow Jones Industrial Average closed above 28,000 on Friday for its eleventh record high of the year. There continues to progress in the US/China trade talks according to White House economic adviser Lawrence Kudlow and the Fed said rates would remain steady for now. US retail sales were up by 0.3% in October, showing that the US consumer is still going strong.

Outside of the markets, the impeachment investigation of President Trump went public this week, with hearings in the House. Bolivian President, and socialist Evo Morales resigned and fled the country.


Stocks have been going up, but GDP forecasts have been headed in the other direction, down. The Q4 forecast for GDP growth comes in at 0.30% for the Atlanta Fed’s GDPNow model, and the NY Fed’s Nowcast registers a gain of 0.39%, both barely above zero.


Federal Reserve Chairman Jerome Powell does not see the need for further rate cuts, in testimony to lawmakers this week. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth.” Powell went on to state that the Fed, at this time, does not have the ammunition it did in the past to fight a future recession given that interest rates are so low.


Week Ending 11/8/2019


  • US stocks up by 2.42% and international +1.84%.
  • Optimism on US-China trade talks.
  • Stocks appear to be in good technical shape.
  • Bonds fall by 0.72% as interest rates are going up on the longer end of the curve.
  • Negative yielding sovereign debt is down to $11.9 trillion from $17 trillion over the summer.
  • Imports fell, job openings have declined (but still exceed the number of unemployed), and productivity turned negative.


Equities had a big week around the world as “risk-on” appears to be back in mode, the US advanced by 2.42% and stocks x-US were up 1.84%. There is growing optimism that the US will avoid a recession, helped by supposed progress on a US-China partial trade deal, that will result in a rollback on some tariffs.

We showed a chart similar to the one below at the October webinar and described a “wedge” pattern, and the market has clearly broken out to the upside since then. Time will tell if the market can hold these gains and advance further, but stocks appear to be strong from a technical standpoint.

Bonds fell by 0.72% as interest rates further out on the curve increased. The yield on the 2-year Treasury was up by 12 basis points while the 10-year yield increased by 21 basis points. Interest rates have also been increasing worldwide. There is now an estimated $11.9 trillion in negative-yielding sovereign debt, down from $17 trillion over the summer. The 20-year US treasury has lost about 8% since mid-August.

While optimism is winning the day in the equity markets, the economic statistics are still mixed at best, as shown by some recent reports below.


Imports for September fell by 1.7% from August according to the Commerce Department. Consumer goods declined by 4.4%, a sharp drop that might indicate that the US consumer is slowing down on spending and/or that tariffs are beginning to impact sales.


There are still plenty of jobs around and the labor market appears strong, but the number of unfilled jobs was a seasonally adjusted 7.02 million at the end of September, according to the Labor Department. That is is the lowest number in 18 months. However, the number of openings still exceeds the number of unemployed by 1.26 million.


US worker productivity declined in the third quarter, it was the first quarterly decrease since 2015. However,  year over year, productivity was still up by 1.4%. That is in line with the 1.3% average from 2007 to 2018, but lower than the 2.1% annual average since the end of WWII. Economic output is a function of changes in productivity and population growth. With population growth stalling, productivity has to improve for the economy to accelerate its rate of growth.



Week Ending 11/1/2019


Stocks moved into record territory as the US up by 1.55% and international stocks advanced by 1.30%. As anticipated, the Fed cut rates by 1/4% and a strong jobs report indicated that a recession does not appear in the cards for at least the very near term. On the other hand, the Chicago PMI came in at a dismal 43.2, the lowest level since December of 2015, but that number might have been impacted by the GM strike. Q3 GDP growth came in at 1.9%, it was the third straight drop in growth, 10 basis points off the Q2 number. The early GDPNow estimate for Q4 is 1.1%.


The Fed cut interest rates for the third time in 2019 by 1/4 point. The move was widely anticipated by the markets. The Fed indicated that there would need to be a deterioration in the economy for another rate cut.


The US jobs machine put in another strong month, lodging an increase of 128,000 in nonfarm payrolls, and that was after a decline of 41,600 due to the GM strike and 20,000 temporary census workers leaving their jobs. The two prior months were revised up by 95,000. The unemployment rate increased to 3.6% as more Americans entered the workforce. Average hourly earnings were up by 3% year over year.


Through Wednesday, about 75% of S&P 500 companies have reported earnings and 75% have beaten expectations. However, overall profits are forecast to fall by 3.2% from last year. That would make it three quarters in a row of declining earnings. Analysts are expecting positive earnings growth in 2020 and 2021 of about 6 and 7%, respectively, although those estimates will probably come down.


Last week the Treasury Department reported that the budget deficit for the year ended 9/30/2019 was $984 billion, up 26% from the prior year. Tax receipts were up by 4%, while outlays were up by 8.2%. This is now the fourth consecutive year of an increasing deficit and the current shortfall was 4.6% of GDP, which is the largest amount excluding a war or a recession. The worst part is no one in Washington seems to care, under the guise that deficits don’t matter. The risk is that at some future point they will matter, and by then it will be very difficult to deal with.