Cautiously Elated

We are starting to get the answers we wanted over the last two years. BREXIT is going to happen with the recent elections in the U.K. and the trade war with China is in a place where the market can feel better that there will be no further escalation. This brings greater certainty to the markets and let’s not forget the Fed cut interest rates three times in 2019. The manufacturing recession that happened over the summer is healing but the jury is still out as China and Europe are still wading through sluggish economies. However, the increased clarity will take time to work their way through the markets so we may not know until next summer how this all shakes out regarding better trade relations and increased corporate profitability.

For the chart below of the S&P 500, I used the January 2018 high as a centerline to show that the stock market has not done much for the better part of two years. The 2018 high is important because it coincided with a great deal of optimism that resulted in a “surprise” move to the downside. Most significant tops have some kind of elation among investors so we need to be on guard for an interim top given the recent China/BREXIT news and the fact that the S&P is approaching an overbought condition (see Stochastic at the bottom). The size of the next correction will be telling and should provide clarity on the strength of this small uptrend that began in early October.

S&P 500 Index

Chart of the Week!

Economic & Central Banking Snippets 

  • The Federal Reserve has left its policy rate unchanged at 1.5-1.75% and indicated that it had no plans to make any more changes in 2020. The Fed also presented their economic projections for 2020: 2% GDP growth, a 1.9% core PCE rate and an unemployment rate at 3.5%. (WSJ/FT)
  • China’s exports in November contracted for the fourth consecutive month. Overseas shipments fell 1.1% from the same period last year according to customs data. Imports unexpectedly rose 0.3% from a year earlier, marking the first year over year growth since April. China’s trade surplus for November stood at $38.73 billion which was lower than the $42.81 billion surplus recorded in October. (Investopedia)
  • Industrial production in the eurozone contracted in October, dragged lower by a steepening downturn in Germany and Italy, although French factories’ output expanded thanks to their specialisation in consumer goods. Factory output in the 19-country currency union dropped by 0.5% in October compared to the previous month, according to figures published on Thursday by Eurostat. Germany, by far the eurozone’s largest manufacturing producer, experienced a 1.5% fall. Italy’s factories, the second-largest in the region, saw output drop by 0.3%. “October’s sharp fall in eurozone industrial production adds to the evidence that the sector’s troubles are far from over,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics. “Output has now fallen in eight of the last 12 months, so the industrial sector was still very much in recession at the start of Q4.” (FT)
  • China car sales data saw a 4.2% y/o/y decline in sales in November. That’s the 17th month in the past 18 with y/o/y drops. (Block Report)

Macro Snippets

  • Boeing reported 30 new orders for its 737 Max jet in November. The jet was implicated in crashes which killed nearly 350 people. Boeing has lost a total of 84 orders for commercial aircraft this year. All 737 Max jets were grounded in March, and will stay grounded until regulators approve changes to flight-control software. (Investopedia)
  • Boris Johnson’s Brexit election gamble has spectacularly paid off as the Conservatives won their biggest victory for more than 30 years. Boris Johnson now has a solid mandate to both exit the EU and negotiate a trade deal. (FT)
  • The US and China have reached a phase one trade deal. The U.S. would roll back existing tariffs and hold off on any new levies. China would buy $50 billion worth of agricultural products in 2020, along with energy and other goods, improve intellectual property protection, open its financial services market and agree to prevent currency manipulation. (WSJ)

That is all for now until next week’s Market Update. Thank you for being a subscriber.  


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.