Market Strategy Radar Screen Weekly November 19, 2018

Riders on the Storm Revisited

Much to ponder as Fed and trade policy grab markets’ attention

As we enter a holiday-abridged week with markets stateside shut down on Thursday for the Thanksgiving holiday traders and investors will add Black Friday (which marks the traditional start to the holiday shopping season stateside) along with anticipation of Cyber Monday retail sales to their “must watch” lists.

Even as many denizens of Wall Street take at least part of the week off to break bread and visit with family and friends, smartphones and at least one or two flat screens in many Wall Street households will be checked for news from the stores and the internet as to consumer behavior on the weekend so important to stores whether of the bricks and mortar variety or cloud-based or of a combined platform of tech and mortar.

With pre-holiday traffic at a number of major US retailers already having shown signs of a healthy pick-up in traffic in the weeks leading up to the Thanksgiving holiday results on Friday and next Monday could provide a welcome boost to investor sentiment that has recently been buffeted by worries about the US trade fracas with China, the direction of monetary policy at the Fed, and recent signs of some economic slowing in the US economy and abroad.

Over the course of last week and into the weekend news remained mixed as to prospects for an agreement with China over trade. President Trump toward the end of last week suggested that a deal with China might happen sooner than later; comments from Wilbur Mills, the high ranking trade negotiator for the administration, signaled that the complexity of any deal with China would make an agreement coming out of the G-20 gathering in Buenos Aires at month’s end unlikely. News items reported by the press on Sunday noted remarks made on behalf of the administration during a week of summits in Asia by Vice President Pence included a call for nations to avoid loans that would leave them indebted to China. The Vice President was also quoted as saying that the US would “not change course until China changes its ways” providing further reason that arriving at a point of resolution to the trade war with China will require investors to curb any enthusiasm and practice patience for the near term.

Stocks stateside slipped further last week even as the S&P 500 and the Dow Industrials managed to eke out respective gains last Friday. For the week the Dow Jones Industrials, the S&P 500, the S&P 400 (mid-caps), the Russell 2000 (small caps) and the NASDAQ Composite (over 40% weighted in tech or tech related stocks) respectively shed 2.2%, 1.6%, 0.9%, 1.4% and 2.2%. (For illustration and further detail see pages 6 and 7 of this report).

In the international realm MSCI EAFE (developed markets exUS and Canada) and MSCI frontier markets lost ground last week respectively declining 1.5% and 0.11%. MSCI Emerging markets managed to gain just over 1% on the week as domestic and international investors sought out attractive valuations in a number of markets in Asia.

The yield on the US 10-year Treasury fell over the course of last week through Friday from 3.18% to 3.06% after remarks from Fed Chair Powell and other Fed officials including Vice Chair Richard Clarida signaled that the US central bank had not lost the sensitivity it has shown to have over the past ten years in dealing with both strengths and vulnerabilities in the domestic economy as well as with global issues.

By the week’s end expectations for a Fed hike in December had come down somewhat and concerns about the Fed’s determination to raise rates through 2019 seemed diminished, thereby easing some of the recent overhanging concerns the market has exhibited about the Fed.

We continue to expect that the Fed will consider the US economy to be growing at a pace sufficient to warrant a hike in December. We expect the market will find a hike of 25 bps reasonable and digestible.

Happy Thanksgiving to one and all.

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