Markets had an amazing week. At this point there are two things that can move markets in a substantial way: the trade situation with China and the Fed. Last week Fed news moved markets higher; a lot higher.
Oh, what a difference just a few words can make. In early October Fed Chair Jay Powell, in an interview, said the Fed needed to get their interest rate to “neutral”. No surprise there. But then he added that the Fed wasn’t near neutral. Now the markets have been fine with the Fed raising their interest thus far. But normally, the Fed doesn’t signal more than a quarter or so ahead. Powell’s “neutral” was and hasn’t been defined. That left markets to wonder how long the Fed was going to raise rates. Markets plunged, and one could make the argument the Fed Chair’s remarks were the cause.
This week those words changed. In a speech last Wednesday Fed Chair Powell said that the Fed was now “near neutral”. Really? The Fed has only raised rates a ¼ point since Powell’s October pronouncement. But the markets did cartwheels and soared upward, with the three big indexes up 5% on the week. The Fed’s final meeting of the year takes place on December 18th and 19th; with a Fed Chair press conference following. You can be sure there will be plenty of questions about the Fed Chair’s two statements. The expectation still exists the Fed will raise the interest rate another ¼ point at this meeting. The key will be their guidance regarding future increases. My opinion is they will Not say “One and Done”. My expectation is they will say something more like “One and Wait”.
So, who or what is really responsible for the Fed Chair’s change? It’s possible the data is the answer. But I think it was most likely President Trump’s displeasure that tipped the scales. Higher interest rates will slow the economy down. The Fed may be looking to do that, but Trump certainly doesn’t want that and has been openly critical of the Fed. Last week on Tuesday Trump shared he wasn’t even a little happy with his selection of Fed Chair Powell. And shazam… the next day Powell changes his verbiage. Maybe that was just a coincidence.
The second read on Q3 GDP came out last week. The prior number of +3.5% was confirmed. The rolling 4-quarter average remains over +3%.
Black Friday results were great. 165 million people shopped in some way. $3.7 billion on Thanksgiving Day (up +28% over last year); $6.2 billion on Black Friday (+23%); and $7.9 billion on Cyber Monday (+20).
The economic focus of the week: Will the deal with China reignite the bull market? Or will it be just a one day upward jump? The Trump administration was ready to significantly increase tariffs on Chinese goods at the first of the new year. The deal reportedly will delay those actions for 90 days to allow further negotiations to continue.
U.S. markets will be closed this Wednesday, to observe a National Day of Mourning for the death of former President George H. W. Bush (41).
The latest jobs and unemployment numbers come out early Friday morning. Last month we saw 250,000 new jobs and the U3 unemployment rate at 3.7%. Expectations are for 190,000 jobs and a U3 to remain at 3.7%.
Indicator focus: November’s ISM manufacturing index (Mon); November’s ISM non-manufacturing index, November’s ADP employment report, the final Beige Book of 2018 (Wed); October’s international trade, October factory orders (Thu); The revised read on Q3 GDP, and November’s jobs and unemployment numbers (Fri).
Have a great week.
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