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Trade vs. Jobs, Stocking Up on French Luxury Goods & Finding Cheap Airfares!

Trade talk moved the markets again this week.  The week started over trade concerns amid comments by the President that trade issues may be unsettled well into next year.  By mid-week the tone had changed to more optimistic comments.  And the markets were lurching lower and higher each day depending on the trade news.  WSJ  It is worth repeating from our previous commentary that the U.S. economy is 70% based on the consumer.  If consumer spending is solid, the U.S. economy tends to act accordingly.  It's not that trade isn't important, but the U.S. is not an export-dependent economy.  Trade issues have an outsized impact on agricultural and manufacturing with some disruption to technology supply chains.  But unless the trade issues dent consumer confidence and spending, the effect on the overall U.S. economy shouldn't be significant.  The job growth numbers being released Friday morning, are a much more significant news item to watch.  So, for the most part, the up and down caused by trade speculation can be ignored.

With all the snow that arrived this week, it certainly feels like the Holidays in the Northeast.  Enjoy the winter wonderland with a hot cup of cocoa while reading The Friday Buzz!

  • ADP Reports Smaller Job Growth:  The ADP National Employment Report showed private jobs growing only 67,000 in November when 150,000 was expected.  The Bureau of Labor Statistics (BLS) will be releasing their overall jobs report Friday morning.  Sometimes the ADP report is off by a large number compared to the BLS.  Nonetheless, the lower than expected ADP number will make the BLS report that much more important.  ADP  CNBC

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Thanksgiving Gratitude, Market Highs, and 2020

With Thanksgiving almost here, we at RSWA want to express our deep gratitude to our clients, friends and supporters and wish that all of you enjoy a happy, safe and relaxing holiday with your loved ones this week.

We are indeed grateful for the strong investment performance year-to-date with the US stock market setting numerous highs, notwithstanding political uncertainties and various geopolitical risks. Fixed-income investors have done well too. The classic 60/40 equity-fixed income portfolio has enjoyed its strongest annual performance in over 20 years. With a little over a month to go in 2019, our Thanksgiving financial wish is that clients and friends hold onto their gains.

  • Goldman Predicts 2020 Will Be A Good Year: Goldman Sachs is positive about the prospects for another good year for stock investors in 2020. Interestingly, they view political stalemate as a plus for the markets. (CNBC) Another group of strategists are less sanguine but still forecast a 5% return. (CNBC)

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Stocks Hit New Highs, Trade Disappoints, & Beating Stress Like a Navy Seal!

The stock market indices were hitting new highs on Tuesday.  But by mid-week they started retreating as news hit that U.S. – China trade negotiations were stalling again.  With a mid-December deadline for new tariffs, trade news will be the main focus for markets in the short-term.

  • Phase One Trade Deal in Trouble:  The U.S. – China Phase One trade deal is in jeopardy.  This has been the story for the last year as encouraging signs of progress quickly disintegrate into impasses over details.  As of mid-week, it appeared both sides once again were deadlocked.  WSJ

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Pondering a Potential Longevity Breakthrough While Markets Enjoy Temporary Calm

With near term US economic recession fears receding, the financial markets are relatively calm. The impeachment hearings will dominate the headlines but not move the markets, which are most sensitive to Fed policy and China trade negotiation news. The Fed has reiterated that it is in a wait and see mode, so investors should not expect additional rate cuts soon.  

  • Fed Taking a Pause: Fed Chairman Powell confirmed this week that the Fed was unlikely to adjust rates downward, if the US economy continues to expand. Quoting him directly, “Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2 percent objective as most likely…” (CNBC) (Wall Street Journal)

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The Yield Curve is Back to Normal, Manufacturing is Picking Up & Space Wine!

A big news item since this spring was that the U.S. government bond yield curve had inverted. An inverted yield curve is when short-term yields are higher than long-term yields and it is one of the closely watched indicators of upcoming slowing growth or a recession. In the last few weeks the yield curve has reverted back to a traditional yield curve where short-term rates are lower than long-term rates. So that economic concern has been taken off the table (at least for now). And many recent economic indicators have been solid. Third-quarter GDP came in at 1.9%. That was a little slower than the 2.0% from the second quarter, but it was better than expected. It's not robust growth, but still solid. CNBC

This year, central banks and governments around the world have been pushing policies to stimulate growth, just like when the Federal Reserve cut rates again last week. So for all the hand wringing earlier this year amid talk of a severe global slowdown and a potential recession, it didn’t happen. And based on the recent indicators, it doesn't appear it will happen in the near future. This is not to say that everything is rosy. We still have trade issues, gridlock in DC, and flat business spending, but moderate growth seems to be where this economy is settling in right now.

This week there are a couple more articles on the health of the economy. For some interesting and fun stuff, there are articles on aging wine in space, the global fertility crash, artificial intelligence, bringing New England mills back to economic life, and how oatmeal can power your athletic performance!

Thank you for reading The Friday Buzz, have a great weekend!

The Economy is Still Creating Jobs: The U.S. Labor Department reported jobs expanded by 128,000 workers, despite 42,000 autoworkers being on strike. That is good news for consumer confidence and spending. WSJ

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The Fed Looks Ahead and Says “Wait and See”

As expected, the Fed lowered short term rates another 0.25% this week, lowering the cost of mortgage, personal and auto loans. Going forward, the Fed said it would want to see the data before committing to another rate cut, noting that the US economy continues to grow and hiring remains strong, notwithstanding weak business investment. (CNBC) Immediately following the announcement, the US stock market reaction was muted. While the China trade conflict and impeachment pots simmer, the Fed narrative re-emerges as a key narrative for the markets.

  • US Economy Slowed Only Slightly in 3Q: The US economy grew 1.9% in the 3Q, down slightly from the 2% growth rate in the 2Q. Consumer spending stayed strong, while business investment retreated. The 1.9% growth was somewhat higher than we expected and will be a factor in the Fed’s thinking going forward. (Reuters)
  • You’re Only as Old as You Feel: It turns out that this expression may have real substance. People who say that they “feel younger” than their chronological age typically are healthier and more psychologically resilient than those who say they “feel older”. Moreover, the discrepancy between chronological and felt age increases with age. Those reaching 70, for example, may feel 15% or 20% younger than their chronological age and be right when it comes to health and psychological metrics.  (New York Times)

Please continue reading for more on the following: Soaring US Deficit; Lonely Planet Loves Maine; Defining Comedy Sketches and an Alzheimer’s Drug Touted. The comedy note is a personal favorite (for what it’s worth!) and is guaranteed to help take the mind off the soaring deficit.

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Housing Sales Fall, Scoring the Trade Negotiations, & Quantum Supremacy!

Most of the news this week focused on political events in DC.  Economic news took a back seat though company earnings for the third quarter were mostly coming in ahead of expectations.  This continued the strong earnings reports that started last week.  As we have mentioned many times in the past, strong company earnings are usually good news for stock markets. 

This week's economic articles are on housing sales, the U.S. and China trade negotiations and the never-ending Brexit saga.  We also have interesting articles on the best plant-based burgers, using dreams to solve problems, how to meditate during a busy workday, and Google achieving quantum supremacy (which sounds like a line out of Star Trek!).

Thank you for reading The Friday Buzz and please forward to anyone who may enjoy the articles!

  • Housing Sales Slow in September:  One of the most closely watched leading indicators for the economy are housing starts.  Last month, sales of homes fell 2.2%.  Even robust employment and lower mortgage rates were unable to overcome a lack of inventory due to labor and land shortages that drove up home prices.  The good news is that buyers are probably out there ready to buy and more houses are set to come onto the market in the coming months.  Wash Post

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“It’s Just That Simple”... China Trade Conflict Dominating US Stock Market

The US stock market is ultra-sensitive to one issue now-the trade conflict with China. The uncertainties around global trade, principally the conflict with China, pose the biggest threat to continued US and global growth. Recalling the signature phrase of the late H. Ross Perot, “It’s just that simple.” The US and China may be nearing a deal that would alleviate the tariff back and forth, even if it fails to address any strategic issues in a meaningful way. (New York Times) Any tariff truce that would stanch the economic bleeding for both countries would be a plus for consumers and investors. (Foreign Affairs)

  • Powell Says US Growth Sustainable: While concerned about global economic headwinds, Fed Chairman Powell remains optimistic that the US expansion can continue. Further rate cuts are not off the table, but it is not clear whether there is an internal Fed consensus on future reductions yet.  (Reuters)
  • Earnings Season Off to Strong Start: US companies are beginning to report on their third quarter earnings, and the initial reports are positive. Investors and analysts will be pouring over the earnings tea leaves. Keep in mind that over the long run, earnings matter more than anything to stock market performance. (CNBC)

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Jobless at 50-Year Low, Buying a Home in Italy for $1 and a Handy Wine Chart!

Last week it was announced the jobless rate continued to fall.  As long as jobs are plentiful and wages grow, it bodes well for continued growth of the economy.  Though jobs are not growing as strongly as previously, they are still growing and a big reason for this economic expansion that has lasted more than a decade. This week we have economic articles on the jobless rate, service sector job growth, plus trade.  There are also articles on how having a positive outlook is good for your heart, Medicare enrollment begins next week, buying a home in Italy for about $1 (What!), and a chart to track the best times to drink wine from different regions and varietals!  Thank you for reading The Friday Buzz!

  • Employment Like It's December, 1969:  Even with the pace of hiring slowing down, the U.S. jobless rate hit a 50-year low in September.  The U.S. economy added 136,000 jobs last month and the jobless rate dipped to 3.5%, down from the August reading of 3.7%.  This is the lowest unemployment rate since December, 1969.  It is also a big reason the economy continues to moderately expand this year even with the headwinds of trade wars, the struggling manufacturing sector and political events.  WSJ CNBC

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Manufacturing - A Flashing Yellow Light

US manufacturing activity slowed again in September, the weakest monthly performance since the summer of 2009. We agree with most business executives, who attribute the contraction to the uncertainties generated by the US-China trade war. (CNN) (New York Times) The manufacturing pullback hits the Midwest, a key 2020 election battleground, especially hard. The already fragile Michigan economy is also reeling from the GM strike, which is now in week 3. While manufacturing only accounts for roughly 10% of US jobs, we still view the slowdown as a flashing yellow light, meaning that investors need to proceed cautiously. It will take a comprehensive trade agreement with China to restart the US manufacturing sector.

  • Atlanta Fed Model Predicts 1.8% 3Q Growth: GDPNow is a favorite tool of financial professionals. It provides a real time estimate of GDP growth, using a similar methodology to that of the US Bureau of Economic Analysis. As the end of a fiscal quarter approaches, it becomes increasingly accurate. With the 3Q over, GDPNow estimates that 3Q growth will be 1.8%. That is slow growth but continued growth, nonetheless.  (Federal Reserve Bank of Atlanta)

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