Weighing The Week Ahead: What Might Go Right?

We have a big week ahead for news and economic data. As I have noted in recent updates, economic fundamentals have had little bearing on stock price movement. In fact, the opposite has been the case. Whatever happens with stock and bond prices is selectively used to spin the data interpretation. That was a challenge this week since the economic reports were very good.

For now, it appears that Santa is off course or else planning to deliver a lump of coal. But maybe, just maybe, there will be a year-end shift in sentiment. If so, we can expect the punditry to make a quick shift to asking: What might go right?

You would not realize it from reading your daily news, blogs, or watching TV, but mainstream thought remains quite positive on the economy and stocks.

Last Week Recap

In my last edition of WTWA I took note of the dire news and recession warnings. For investors focused on fundamentals, I suggested there might be a chance for some holiday shopping. After an early-week bounce, that proved to be correct.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski. She includes a lot of relevant information in a single picture – worth more than a thousand words. Read the full post for more great charts and background analysis

The market declined 1.3% for the week, but it probably felt worse to most observers. The sharp selling after Tuesday’s strong opening created a lot of buzz. The end-of-week decline felt even worse. The trading range was 3.9%, lower than recent levels but still elevated. Readings on actual and expected volatility are included in our Indicator Snapshot.

The sentiment is partly driven by the drawdowns, of course, which are not exceptional by historical standards. Something not reflected is that the average stock is down more than the index. Large caps and bond-equivalent sectors have held up better than the average stock, and a lot better than those with trade or economic sensitivity.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

New Deal Democrat’s high frequency indicators are an important part of our regular research. This week’s update shows that the long-leading indicators have improved to neutral while other time frames remain positive. Read the full post to get a better sense of the range of indicators and more color on the interpretation.

When relevant, I include expectations (E) and the prior reading (P).

The Good

  • JOLTS showed continued labor market strength. (BLS)

  • Wholesale inflation via PPI registered 0.1%. E 0.0% P 0.6%.
  • CPI showed no increase on the headline and the expected 0.2% on the core.
  • Initial jobless claims dipped to 206K. E 228K P 231k. This broke a string of somewhat higher readings, although the series remains in record territory.
  • Industrial production grew 0.6% in November. E 0.2% P -0.2% revised down from +0.1%. The November strength is partly a reflection of the revision in the prior month.
  • Investor sentiment (a contrarian indicator) is the most bearish in the last five years. (Bespoke)

The Bad

  • Retail Sales gained only 0.2% E 0.2% P 1.1% revised up from 0.8%. Most viewed this report as OK. A flat number is not unusual when the prior month is revised higher. Eddy Elfenbein explains.
  • The chemical activity barometer is still increasing, but only 2.8% on a three-month moving average and a 0.8% decline in November. (Steven Hansen, Econintersect).
  • NFIB Small Business Optimism Index remained very high at 104.8, but missed expectations of 107. P 107.4. This year is going to beat 2017 for the best record in the history of the survey. The biggest complaint? Difficulty in finding qualified labor. Bespoke describes this as a “meaningful pullback” after three straight monthly declines. David Templeton (HORAN) analyzes the reasons behind this move.

  • Sea container traffic declined significantly in LA and Long Beach. Steven Hansen (Econintersect), as we expect him to, looks at the data from a variety of interesting perspectives. Because it is a noisy series, he prefers 3-month rolling averages. He concludes that “it was a terrible month…This is the first dataset I have seen which could be a self-inflicted wound from the trade wars.”

The Ugly

In the spirit of the holiday season, let’s take a break from the ugly. Mrs. Old Prof and I wish a Happy Holidays to all (even Bear fans once tomorrow’s game is over).


There is some interesting history about how containers revolutionized trading and conferred economic benefits on particular countries. The visual is very large, so I am including only a portion here. Be sure to check out the full infographic here. I am including enough to show the US versus China, and the rise of China compared to Rotterdam, the world’s busiest port only fifteen years ago.

The Calendar

The calendar includes many important reports – housing, personal income and spending, and leading indicators. The FOMC rate decision will be a focal point. While another hike is anticipated, the accompany press conference and statement will be closely watched for signs of future plans.

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[If you are confused about the current market and unsure how to react, you might want to request some of my papers for individual investors. Or even a complimentary portfolio ...

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Alpha Stockman 5 months ago Member's comment

Always enjoy starting my week by reading these.