Week Ending 6/14/2019


  • Stocks in the US were up by 0.57%
  • A strong retail sales report.
  • Executive confidence is declining.
  • Industrial production was up in May but still down from December.
  • Another hit to free markets as NY implements strong rent control legislation.


Stocks rose in the US by 0.57% and dropped by 0.52% around the world. Equities were helped by successful initial public offerings. Chewy, an internet-based pet-product retailer jumped 59% in their debut. The trade war is still on investors minds, Broadcom reduced its sales estimate by $2 billion this year because of that.

US stocks are hovering around the May 16 price level, which was the last interim high. The VTI has failed to close above that level for five consecutive days (see the orange line below).


Retail sales increased in May by 0.5% with broad-based gains. April sales were revised up to +0.3% from an initial report of a 0.2% decline. The strong report will give the Fed some pause before cutting interest rates. Real personal consumption expenditures (PCE) are increasing at a 3.9% annual pace this quarter. PCE accounts for more than two-thirds of the economy.


The Business Roundtable reported that chief executives confidence in the economy fell to the lowest level since Q4 of 2016. And a survey of CFOs from Duke University showed that 69% expect a recession will have begun by the end of 2020.


Industrial production was up by 0.4% in May after dropping by 0.4% in April. Year over year, industrial production was 2% higher but it is 1.5% lower than the December level.


In another blow for free markets, New York passed rent control legislation that would impact almost one million rent-regulated apartments in New York City or about 40% of the city’s rental inventory. The legislation allows other municipalities to adopt similar regulations. The legislation was more aggressive than real estate industry groups expected and will likely lead to deterioration of apartments over time. Instead, the legislature should have focused on making it easier to develop new housing.


Week Ending 6/7/2019


Stocks around the world went into a strong rally during the week. US stocks had their best day in five months on Tuesday after Federal Reserve officials discussed possibly lowering interest rates. The Dow advanced by 512 points or 2.1%. The S&P 500 matched the 2.1% increase and the NASDAQ surged by 2.6%. St. Louis President James Bullard said that a lowering of rates “may be warranted.” Fed Chair Powell said, “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.” Things got better from there as the market moved up each day. For the week, the US stocks were up by 4.34% and international stocks by 2.78%. Bonds also increased by 0.12%.


Late on Friday the US and Mexico reached a deal on immigration to avoid Trump’s threat of new tariffs.


Nonfarm payrolls were up by 75,000, falling way short of the estimate of 175,000. The much lower than expected number helped raise expectations that the Fed would be more to apt to cut interest rates in the near future, thereby helping to move stocks higher. However, other gauges of the labor market are still strong, including initial claims for unemployment, a historically low unemployment rate (3.6%), higher average hourly earnings (+3.1%), and a steady average workweek (34.4 hours)


The World Bank lowered its growth forecast to 2.6% from 2.9% in January. The estimate for growth in trade fell to 2.6% from 3.6%. “There’s been a tumble in business confidence, a deepening slowdown in global trade, and sluggish investment in emerging and developing economies,” said World Bank President David Malpass. The lower forecasts are directly related to trade conflicts.


Week Ending 5/31/2019


  • Stocks are down by 2.69% in the US and 1.12% outside the US.
  • The technical damage begins to add up.
  • More trade war threats with China and now Trump adds tariffs to Mexico and threatens more.
  • The 3 month/10-year curve is still inverted.
  • There are multiple efforts around the world for trading systems that do not rely on the US dollar.


It was another rough week as US stocks tumbled by 2.69% and international stocks fell by 1.12%. Bonds were up by 0.9%. Trade war fears and the impact on businesses and the economy continue to hurt stocks (read below). The technical damage to stocks is starting to add up. The VTI fell below resistance (see 1-3-5-9 below) and the price is under the 200-day moving average. The 50-day moving average is now on a downward slope.


Trade war fears continue to rattle the markets. Threats fly back and forth. Chinese media reported that China would consider cutting exports of rare-earth metals that are necessary for some advanced electronic products. China said it would not accept any deal that harms sovereignty and dignity. On Friday, Trump said he would begin implementing a 5% tariff on imports from Mexico, that would increase from there if there is no progress on illegal immigrants passing through Mexico on the way to the US.

Since Trump increased tariffs on China in early May, the market has fallen by x%, resulting in a decline of about $5 trillion dollars in US equities. In the last 30 days, Trump has put in place or threatened, tariffs amounting to almost $200 billion in increased costs on US businesses. That would be enough to cancel out the value of the tax cuts. But worse than that, the tariffs will disrupt supply chains, make businesses more inefficient, lower business certainty and confidence, increase unemployment,  lower profits, and reduce the perception of the United States as a reliable trade partner, among other things. In other words, bad things will happen. And as the tariffs ramp up, and the longer they last, the more damage.

Considering that the US economy was not that strong to start, a tariff war being fought on multiple fronts increases the odds of a recession in the next year or so. Trump may not realize it, but he lowers the chances for his reelection with these foolish policies.


The 10-year yield has fallen to the lowest level since September of 2017 and yields less than the 3-month treasury bill. All recent recessions have been preceded by an inverted yield curve.


The Trump administrations constant use of economically isolating individuals, companies, and countries around the world are increasing the calls for an alternative system that does not rely on the US dollar. Europe, China, and Russia are working on their own bank-transfer systems, and others are also in the works. The net result is that over time the power of the dollar could fade.


Week Ending 5/24/2019


  • US stocks fall by 1.14% on continued trade worries.
  • The 3-month/10-year spread has inverted again.
  • Trade relations with China continue to deteriorate and Mexico/Canada could be next.
  • Weak PMI and durable goods reports.
  • May resigns as PM increasing the odds of a hard Brexit.
  • Positive news in Japan.
  • The Vancouver housing bubble is bursting.
  • The ratio of copper to gold is falling.


US stocks fell by 1.14% and international equities were off by 0.27% as trade war worries continue to rattle the markets. The Dow is on a five-week losing streak, the longest since 2011. The bond market was up by 0.35%, as demand for government paper has jumped. The 10-year yield fell to 2.327% and is back to being lower than three-month yields, creating another inverted yield curve.


Trade relations with China continue to deteriorate. Not content to freeze Huawei from international markets, the Commerce Department is now putting together a list of other Chinese companies to blacklist. All of this will create long-term harm for US businesses. Going forward, why would any international company choose to do business with a US company, all other things equal, knowing their supplies could be cut off at the whim of a US President? Meanwhile, the White House is having problems getting Congress to approve the new trade deal with Canada and Mexico. If Congress does not approve the deal, Trump could follow through on his threat to withdraw from NAFTA, which would be another heavy blow to the economy.


The IHS Markit US manufacturing PMI came in at 50.6 for May, the lowest level since September of 2009. Overall business activity growth fell to a three-year low. “Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” said Chris Willamson, Markit’s chief business economist.

Orders for durable goods fell by 2.1% in April, and the March numbers were revised down. A drop of 25% in civilian aircraft, impacted by the grounding of the Boeing 737 MAX, impacted the numbers.

The combination of weak PMI and durable goods reports has led to lower Q2 GDP estimates. Research firm Macroeconomic Advisers dropped its Q2 estimate to 1.7% from 1.9% and the NY Fed’s Nowcast fell from 1.41% from 1.79%.


Theresa May resigned as British Prime Minister after failing to get a Brexit deal through Parliament. May will remain in office until a replacement is named. Former foreign secretary Boris Johnson is the leading candidate to replace May. Johnson is much more of a hardliner and would be more apt to make a clean break with the EU without a deal. In general, businesses fear the economic shock of a no-deal Brexit.


The Japanese economy expanded at a 2.1% rate in the first quarter, that is up from 1.6% in Q4. The 2.1% also exceeded analysts expectations, who were expecting a flat to a negative number.


We have written about the problem with excessive housing valuations in Canada and it looks like the bubble has popped, at least in Vancouver, the epicenter of the excess. Stories abound of expensive homes and condos going for discounts of 25% to 50% off assessed value or recent transaction prices. A quarterly index of prices shows Vancouver values dropping by 14.5% year over year. Land sales were down by 54% in the first quarter.


The price of copper relative to gold has dropped recently. A falling ratio has been a precursor to some market declines in the past.


Week Ending 5/17/2019


The White House and China, falling right in line with the trade war playbook (that has led to economic declines), exchanged tariff threats on Monday, leading to the worst daily performance since December. The S&P dropped 2.4% and the Nasdaq fell 3.4%. Beijing said they would increase levies on $60 billion in US imports and Washington responded with 25% tariffs on $300 billion in Chinese imports to start this summer. Despite a good performance on Wednesday and Thursday, the Monday drop was too much to overcome, and US stocks ended down by 0.87% and international stocks were off by 1.58%. Bonds rallied by 0.33%.


A White House decision to limit Huawei Technologies access to US markets has now ramped up the trade dispute to a much higher level. Huawei is perceived as the top technology company in China and one that the Chinese population takes pride in. Taking action against a specific Chinese company will probably lead to retaliatory action against specific US companies, maybe Apple to start.


The Conference Board’s Leading Economic Index for April increased by 0.2% while the Coincident Economic Index increased by 0.1%. The spread between the leading index and the coincident index has now increased just slightly the last three months. A spread that is falling has often been a sign of a recession down the road.


According to a Bank of America Merrill Lynch fund manager survey, 34% have purchased protection against a sharp fall in stocks over the next three months. That is the highest percentage in the survey’s history and might be a contrary indicator.




Week Ending 5/10/2019


  • US stocks fall by 1.73% and international stocks were down by 2.33%.
  • Trump hikes tariffs on China.
  • Uber’s IPO turns negative.


The market rally since the December 24th low had been powered by a dovish turn by the Fed and the anticipation of a trade deal with China. Well, you can take the trade deal with China off the table, at least for now, as President Trump surprised the markets on Monday by tweeting that he was going to increase tariffs because of backtracking by China in trade negotiations. That set off a rough week, with the S&P 500 falling by 2.2%. About $2 trillion in equities values vanished according to Refinitiv with the loss. Trump followed through on his promise implementing a 25% tariff on $200 billion in Chinese imports. The market did manage to finish up on Friday after being down by about 1.5% on hopes that the two countries would eventually reach a deal.


Uber turned in one of the worst IPO’s in recent memory. Closing at $41 after being priced at $45 per share. Investors are not so keen on a company that is generating $1 billion in quarterly losses.


Week Ending 5/3/2019


  • Stocks around the world were up for the week.
  • A very strong jobs report.
  • Best productivity report since 2010.
  • The Fed holds steady on interest rates.
  • ISM numbers are down.
  • Eurozone reports better growth.
  • Chinese PMI falls


US stocks advanced for the by 0.33% and international stocks were up by 0.56%. A strong jobs report on Friday helped the market finish in the black for the week. It was the best first four months of the year since 1999.


It was another strong jobs report as 263,000 jobs were added in April and the unemployment rate dropped to 3.6%, the lowest rate since December of 1969. Average hourly earnings were up by 3.2% year over year. On the downside, the US workforce fell in April.


Nonfarm worker productivity improved at the fastest rate since 2010, up by 2.4% year over year. Normally, productivity rises earlier in an expansion, not later, so the acceleration 10-years into the cycle is a positive sign that the economy might be able to go longer without a recession. Higher productivity also means that the economy can grow at a faster pace without kindling inflation.


The Federal Reserve did not change interest rates at their meeting this week. Chairman Jerome Powell said, “Overall the economy continues on a healthy path, and the committee believes that the current stance of the policy is appropriate.” Core inflation was up by just 1.6% in March, lower than the 2% target. Powell said that temporary factors kept inflation lower than the target. Lower inflation would give room for the Fed to cut rates.


The Institute for Supply Management’s Purchasing Managers Index fell to 52.8 in April, the lowest reading since October of 2016. That means that manufacturing is still growing (above 50 is expansionary) but the pace of growth is slowing. The trend is down. “We’re coming down faster than I would really like,” said Timothy Fiore, chairman of the ISM’s Manufacturing Business Survey Committee. Concerns include tariffs on China and Trump’s threat to close the US-Mexico border. There is some hope that with global economic activity stabilizing, manufacturing in the US might see some improvement.


Eurozone’s GDP increased by 1.5% for the first three months of the year, up from 0.9% in Q4. That is now two consecutive quarters of improving growth. The 1.5% does not match the US rate of 3.2%, but at least it moving in the right direction.


While the Eurozone had some positive news, that was not the case in China this week. The official manufacturing purchasing managers index fell to 50.1 in April from 50.5 in March. The number still shows expansion (above 50) but raises questions if China’s policies to stimulate growth will be effective.



Week Ending 4/26/2019


  • US stocks are up and end the week at a record.
  • International stocks fall.
  • Q1 GDP comes in at 3.2%, exceeding estimates.
  • Social Security to go into the red.


US stocks were up by 1.25% and international stocks fell by 0.54%. US stocks finished at an all-time high. Earnings estimates increased for 2019, 2020 and 2021 this week. That was the first time since September that estimates were increased for the next three years (back in September it was 2018-2020).


US GDP growth surprised to the upside for Q1, expanding at a 3.2% annual pace. That is up from 2.2% in Q4 and better than the consensus estimate of 2.5%. Stronger spending by state and local governments, up by 3.9%, probably due to the federal government shutdown, helped accelerate the growth. A build-up of inventories also added to the number. On the downside, consumer spending slowed to a 1.2% pace, the lowest increase in a year, and business fixed investment dropped to 2.7% from 5.4%. Investment in new housing dropped for the fifth straight quarter.

The interesting part about the result is that the outlook for Q1 was bleak at the beginning of the quarter. The initial Atlanta Fed GDPNow estimate was 0.3%. Normally, the estimates fall as the quarter goes on, but this time it went higher.

However, the 3.2% headline number may not be as good as it looks. Take away the increase in inventories, the higher government spending, and trade figures, the growth was only 1.3%.


Social Security’s costs will be greater than its income in 2020 as more and more baby boomers begin to retire. The fund currently has a trust fund of $3 trillion. By 2035, the trust fund will be depleted. What we have here is a problem that everyone has known about for decades, but was pretty much completely ignored by our political leaders. And whenever a politician was brave enough to actually recommend a solution, they were immediately attacked, harassed and shot down. Well, the day of reckoning is on the way.



Week Ending 4/19/2019


  • Watch our Quarterly Webinar here.
  • US stocks fall slightly and are just under all-time highs.
  • International stocks advance.
  • A very good retail sales report.
  • Industrial production in China was up 8.5% for March.


US stocks fell slightly, down by 0.28%, failing to break through the September 20th high. The market is less than 1/2% from that closing high. International stocks managed a gain of 0.32%. Bonds fell by 0.07%.

There was some good economic news this week. A solid retail sales report and good industrial numbers for March in China, see below.


Our quarterly market review/outlook was published today on YouTube. You can view it here at this link.


Retail sales for March were up 1.64%, the increase was much higher than the consensus and it was the largest increase since September of 2017. The high number helped increase the Atlanta Fed’s GDPNow estimate of Q1 growth to 2.8% from 2.3%.


Industrial production in China jumped by 8.5% in March from a year earlier and the economy grew by 6.4% in the first quarter. The 6.4% increase even with Q4 and just below prior quarters but gives hope that China is beginning to stabilize. Lower taxes and regulation from the Chinese government spearheaded the improvements