Ring Out the Old

“We’ll take a cup o’ kindness yet, for auld lang syne.” – Robert Burns

The title of this week’s holiday-shortened column is more than just a nod to the changing of the years. The business cycle is changing too, and I strongly suspect that 2016 will see the end of the current one. Absent some sort of credit-boom miracle, we will see at least the beginning stages of recession; the second half of 2015 has already provided several glimmers in the form of slowing growth nearly across the economic landscape, in particular with negative corporate profit growth. The one hold-out is employment, always the last category to turn. My guess is that it too begins to turn in the first quarter of 2016, but time will tell.

The end of 2015 was much like the end of 2014, in that the last up day came two days before the end of the year and was followed by two days of selling. In many years it would have been easier to mark prices up a bit more the last two days, but Wednesday’s advance seemed to invite too many sellers looking to unload positions.

And so the Dow and S&P 500 finished the year slightly in the red. Only the Nasdaq managed to eke out a narrow gain, thanks mostly to a few popular growth stocks now over-owned. I expect 2016 will be worse, but have little to say about next week – stocks are nearly overbought nor oversold, and while there hasn’t been much optimism in the tape these days, that can have a way of boomeranging prices higher. The first couple of days of the week should be a good clue to January, as they usually are.

I don’t know if the top of this bull market has been put in, though it certainly feels like it, but sticking around for a marginal new high seems like risking a lot for little. If you haven’t done so already, I and advise all and sundry to start lightening up on equities now. and wish all of my readers a very Happy New Year!

The Economic Beat
(in holiday time)

The week started off with yet another listless report in international trade, this one an advance report suggesting further declines of roughly 2% in exports and imports of goods for the month of November. The Case-Shiller home price index reported a monthly bounce of nearly 1% for October, but the year-on-year rate stayed steady at 5.5%.

Weekly reports indicated a good-sized bounce in retail sales during Christmas week, though a bit less than I expected. Doubtless the warm weather hurt apparel sales.

Pending home sales in November declined by nearly a percent at (-0.9%), with rising prices and tight inventories a familiar refrain of late in the housing market. That disappointment was eclipsed the next day by a very low Chicago PMI (purchasing manager) survey result of only 42.9 (50 neutral) on Thursday. The number was well below consensus and while not the market-mover it once was, it was certainly no excuse to get longer in equities. Consumer confidence, a backward-looking indicator, remains high and weekly jobs claims were seasonally low. Next week is a big one, with the ISM manufacturing index on Monday, Fed minutes on Wednesday and the all-important jobs report on Friday. Happy New Year!

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