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Daily Blog

Thursday, January 16, 2020

The “Phase I” China deal is in the books and it certainly was good for the United States. It commits China to recognizing and enforcing the protection of U.S. intellectual property rights, and to spending $200 billion more on U.S. goods; it addresses China’s currency manipulation and keeps most tariffs against China in place. The U.S.-Mexico-Canada Agreement (USMCA) also is a win today, with passage by the Senate benefiting U.S. manufacturing, labor and intellectual property. This will be a boon for higher paying jobs and ever more jobs, even though we are at a 50-year low in unemployment.

Fabulous news — so why is the Fed stimulating the markets by giving banks over $300 billion since September, $82 billion in January alone? This massive stimulus also effectively cut the fed funds rate near its normal 25 basis points (bp) by forcing the rate to the lower end of its 1.50–1.75% target range. Coincident with the timing of this Fed stimulus, a lot of this cash has ended up in the stock market. In 4Q19 the S&P 500 surged 9.1% and so far is up over 200 bp in 2020. Great for investors — for now. The Federal Reserve has expanded its balance sheet from $3.8 trillion in September 2019 to $4.1 trillion now, though the balance declined somewhat in January. Does the Fed see something we don’t, and how bad are the “overnight lending” problems it is trying to solve?

Weekly Commentary & Statistics

Monday, January 13, 2020

U.S stocks closed an otherwise solid week slightly lower on Friday following a softer-than-expected December non-farm payrolls reading, with all three major averages shrugging off geopolitical tensions and gaining as the week progressed.

Quarterly Commentary & Outlook

December 2019

While warnings of recession, bear markets and trade wars going into and throughout 2019 were rampant, calendar year equity returns are shaping up to be among the best since 2009. What did the market miss, and what insight might it give us for our 2020 forecast? Well, contrary to popular belief, when the market is coming to an inflection point, it is fundamentals that show the way, not price action, which in fact often shows the wrong way.

  • The New Year is approaching, riding on the heels of raging global stock and bond market rallies.
  • Last year strong fundamentals ultimately led to the best broad-based market in a decade.
  • 2020 is likely to begin with faltering fundamentals, including the first negative earnings growth in 12 quarters along with four consecutive months of manufacturing contraction.
  • There are divergent outlooks among the “Big 3” (Europe, China and the United States); U.S. is stable, but Europe and China face serious challenges.
  • U.S. Manufacturing is contracting, while the U.S. Consumer remains the game changer, a likely tailwind in 2020. Expect calm followed by storms, and remember the sequel is never as good as the original.

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