Markets rose in a holiday-shortened week, with the S&P 500 Index gaining in seven of the past eight weeks and hitting a fresh record high. For November, the S&P 500 returned 3.6% (9th positive month this year), bringing the year-to-date total to near 27%. If the year ended today, this would be the best year since 2013 and third-best since the technology bubble.
Holiday shopping continued to trend online, with a record $5.4 billion online on Black Friday (up 22% from a year ago), and a record $4 billion on Thanksgiving. Brick-and-mortar stores suffered as a result, with Black Friday sales falling 6.2%, though Thanksgiving sales rose 2.3%. The shortened holiday season and shoppers increasing preference for online purchases may be making Black Friday less of a predictor of total season sales. Cyber Monday sales are expected to be nearly double that of Black Friday.
The trade conversation with China became more complicated with the passage of a bill supporting the Hong Kong protestors. In retaliation, China suspended visits by the U.S. military to Hong Kong and sanctioned several U.S. non-governmental organizations. Despite this conflict, most still expect a trade deal to happen, with President Trump likely to hold off on the December 15 tariff escalation. A catalyst may be China’s annual Economic Work Conference that is expected in the next few weeks that will set economic policy for the next year. Data in China continue to be mixed, with industrial profits down 10% in October and PMI’s ahead of expectations.
The U.S. economy is still growing, albeit at a slow pace. Third-quarter GDP was revised slightly higher to 2.1% from 1.9%, and the Atlanta Fed’s GDP model now predicts fourth-quarter growth at 1.7%, up from just 0.4% previously. Personal spending slowed in October to 3.7% from a year ago, while personal income was strong at 4.4%. Other encouraging economic data included housing and Chicago PMI.
An FOMC meeting is scheduled for next week, and there is little buzz in the markets. The Fed Futures curve currently embeds a 0% chance of a cut, with a 5% chance of a hike. A month ago, there was a 12% chance of an additional cut. While the odds are rising, a hike is unlikely, as Fed Chair Powell said in October they would need to see a significant rise in inflation that is persistent before raising rates. Through next June, there is a 62% chance of no change, a 3% chance of a hike, and a 35% chance of one or more cuts.
What to Watch
Data this week includes revised PMI data on Monday and Wednesday, durable goods on Thursday, and payrolls and consumer sentiment on Friday. Fed officials are in a blackout period ahead of next week’s meeting.
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