S&P 500 Coasts Into Thanksgiving Week

After three consecutive weeks of setting new record highs, the S&P 500 (Index: SPX) set one more record high close of 3,122.03 on Monday, 18 November 2019 before coasting lower during the remainder of the third week of November 2019 to end the week at 3,110.29.

Overall, our observation last week that the index appeared to be slightly ahead of itself appears to have been correct and to have corrected, where one week later, the S&P 500 closed the week fully consistent with how our dividend futures-based model would set it, assuming investors are focusing 2020-Q3 (or 2020-Q1, since the alternate trajectories associated with both these future quarters are little different from each other, although we think 2020-Q3 is the dominant focal point at this time).

We believe investors are primarily focusing on 2020-Q3 at this time because the CME Group’s FedWatch Tool indicates this quarter now has better-than-even odds of being when the Federal Reserve will next act to change interest rates in the United States, with investors anticipating a quarter point rate cut in the Federal Funds Rate during this distant future quarter.

For the news of the week, the prospects for a ‘phase 1′ trade deal between the U.S. and China continued to generate noise affecting stock prices, but if there’s a theme, it’s the split between comparatively positive news for the U.S. economy and the ongoing descent of gloom over a slowing global economy.

Monday, 18 November 2019

• Oil prices fall more than 1% on trade talks uncertainty
• Bigger trouble developing in the Euro zone:

• Tata Steel to cut 3,000 jobs in Europe
• German economy to stagnate but no recession coming: Bundesbank

Bigger stimulus developing in China and perhaps also in Japan:

• China cuts short-term funding rate for first time since 2015
• BOJ can still deepen negative rates, within limits: Kuroda

Fed minions discuss state of U.S. economy:

• Trump, Powell met Monday at White House to discuss economy

• Trump says he told Fed’s Powell U.S. interest rates are too high
• Trump says ‘cordial’ talk with Fed’s Powell covered negative interest rates, trade

With inflation low, Fed can boost job market: Daly

Fed’s Mester: U.S. monetary policy ‘in a good spot’

Wall Street nudges up as investors await U.S.-China trade clarity

Tuesday, 19 November 2019

• Oil slumps on oversupply fears, trade talk concerns
• Fed’s Williams: Risks to U.S. economy still to the downside

• NY Fed’s Williams: Financial regulations may have created inefficiencies… requiring billions of dollars of daily cash injections

Global economy dodges recession by narrowest of margins: Kemp

• Bank of Canada’s Wilkins says Canada ready for possible economic storm

Much bigger stimulus developing in China:

• China central bank governor says will step up credit support to economy
• China widely expected to trim lending benchmark LPR: analysts

Retail sector weighs on Wall Street; Dow and S&P end lower

Wednesday, 20 November 2019

• Oil jumps over 2% after U.S. inventory data, Russia OPEC comments
• Trade deal negotiations:

• A U.S.-China ‘phase one’ trade deal may not be inked this year
• Beijing tariff demands may expand U.S.-China ‘phase one’ trade deal significantly

Bigger stimulus developing in China

• China trims new benchmark lending rate again to shore up sputtering economy
• China sets up $21 billion fund to upgrade manufacturing: Shanghai Sec News

Confusion reigns among Eurozone’s ECB minions:

• ECB’s Lane rules out euro zone recession, says recovery in next year or two – logically, how can you even have a recovery unless you’ve effectively had a recession first?
• ECB not close to reversal rate: de Guindos – because negative interest rates aren’t hurting Eurozone banks enough?
• Germany’s next ECB board member: criticism threatens euro – “Shut up,” she explained….

The Fed’s minions pause for reflection:

• Fed’s Brainard: Time needed to assess effect of rate cuts
• Fed minutes show rates on hold, little hurry to change course
• Fed holds off on permanent lending tool as policymakers mull details
• Fed shows little appetite for bold policy change sought by Trump

Wall Street falls on concerns about U.S.-China trade deal progress

Thursday, 21 November 2019

• Oil rises to two-month high on hopes of longer OPEC cuts, U.S.-China trade deal
• U.S. existing home sales rise more than expected in October
• Trade deal negotiations:

• China says it will strive to reach ‘phase one’ trade deal with U.S.
• China’s Xi says he wants to work out initial trade deal with U.S.

Japan November factory activity shrinks for seventh month, increases economic strains: flash PMI

Fed minions consider state of U.S. economy:

• Fed’s Mester: Weakness in hiring and consumer needed for material reassessment of economic outlook
• Fed’s Kashkari sees continued U.S. growth, but big risk from trade

Wall Street dips as investors await U.S.-China trade progress

Friday, 22 November 2019

• Oil pulls back from two-month highs on China trade worries
• U.S. factory and services activity quicken in November: Markit
• Trump, Xi send positive signals on initial deal to defuse U.S.-China trade war
• Bigger trouble developing in the Eurozone:

• Euro zone business activity gloomy in November, scant hope for improvement
• Euro zone needs to create its own economic growth at home: ECB’s Lagarde

Bigger trouble developing in Japan:

• Japan’s factory output, retail sales likely slumped as tax hike bites
• Japan tempers view on employment, profits as slowing global growth weighs
• Japan econmin says exports, production continue to show weakness

Wall Street rises with U.S.-China trade mood, upbeat economic data

One thing to watch for in the weeks and months ahead is the extent to which the U.S. economy might be slowed or otherwise impacted by what has been happening in the global economy during much of the past year and half, where many nations’ reported economic growth is now within a margin where even modest revisions in their data would place them in recession.

Elsewhere, Barry Ritholtz listed the positives and negatives he found in the week’s economics and market-related news, finding six of each, with housing in the U.S. having multiple entries on both sides of the ledger.

With Thanksgiving Week now at hand, we’re looking forward to our annual tradition of celebrating the most American of all holidays throughout the rest of the week! Assuming the markets will be slow as both companies and traders switch to holiday mode, be sure to check in with us to get your annual fix of Thanksgiving-related tools and analysis, starting in 3…2…1!