Preparing for the End

“Content makes poor men rich; discontent makes rich men poor.” – Benjamin Franklin (ed.), Poor Richard’s Almanack

The Thanksgiving week report is always a light one, much like the volume accompanying the stock market’s slow rise to all-time highs on all three major indices during the shortened trading session on Thanksgiving Friday, marking the first such occurrence since 1999 (not the greatest of omens). Equities ended the week quite overbought and are ripe for some sort of pullback.

The main factors for the rest of the year are the impending December jobs report (this Friday), the next Fed meeting (nothing new about those first two), political news flow from Washington and the end-of-the-year rally. Though I do expect the market to finish December in the plus column, prices rate to be in for some backing and filling first.

The so-called “Trump rally” in stocks can last through year-end, so long as the Trump transition team is sufficiently vague enough about plans to allow market participants to continue the current practice of fervently believing in widely contradictory goals and outcomes. Historically post-election moves have been good contrary indicators of the intermediate direction of the market, but this time will said to be different and the rally should last through year-end, though it will likely hit some bumps along the way.

Potential negative surprises might come from the jobs report, adverse trade policy announcements, or indeed other policy surprises from the erratic Trump team, which could also surprise in a positive direction. Potential positive surprises – though I make no predictions on the matter – might also come from the Fed and reports on December sales. Trading is likely going to be all sentiment from here until the end of the year – a view so widely held that it worries me. The universal consensus view is one of the biggest traps on Wall Street.

I trust all enjoyed the Thanksgiving break, hope you were able to feast properly and in a manner free of political discord. Next year may be quite different.

The Economic Beat (in holiday time)

The Chicago Fed national activity index was negative again in October, with the 3-month moving average also declining. It has been below the neutral level of zero all year.

The October existing home sales rate of 5.6 million homes (annualized, seasonally adjusted) was the best since October 2007 and represented a 5.9% year-on-year gain. The pace of new-home sales growth moderated somewhat in the month, but remains +13.1% on a year-to-date basis.

Order for durable goods had a good month in October, rising 4.8% (SA) thanks mainly to airplane sales, which are bookings that have multi-year lead times. Order were still up 1% excluding transportation, but business cap-ex spending continues to show weakness and is down 4.3% (SA) year-to-date. February is still the only month in 2016 not to show a negative year-on-year comparison (unadjusted), and that was thanks to its extra day in this leap year. The trade goods deficit estimate for September grew, putting downward pressure on third-quarter GDP.

The highlights for next week, which will see us enter the last month of the year, are the first GDP revision on Tuesday, the ISM manufacturers’ purchasing manager index on Thursday, and the all-important jobs report on Friday. The consensus estimate is for a gain of about 170,000 jobs.

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