The Market Today

TODAY’S CALENDAR

Goods Trade Deficit and Inventory Changes **Postponed**: The three reports originally scheduled for 7:30 a.m. CT on goods trade and retail and wholesale inventories are all sourced from the Census Bureau and have all been pushed to a later date because of the government shutdown.

 

Chicago PMI, Pending Home Sales: In the late-morning economic releases, the Chicago Purchasing Manager Index is expected to decline in December, consistent with regional activity surveys from the Fed, while pending home sales are projected to have risen a modest 1.0% in November. Pending home sales sank 2.6% in October to their weakest rate since June 2014. Existing home sales, the ultimate result of leading pending sales activity, rose in both October and November but had declined in each of the prior six months. The total pace of existing sales is currently the third slowest since early 2016.

 

TRADING ACTIVITY

Yesterday – Another Whippy Day on Wall Street As Stocks Stage Late-Session Surge: The Dow added more than 250 points to Wednesday’s historic 1,000-point rally after a spectacular intraday reversal Thursday continued to spin heads on Wall Street. The Dow spent majority of the day in negative territory and bottomed down 611 points, or 2.7%, just before 1:30 p.m. CT. However, the tone turned abruptly and the index skyrocketed in the final hour and a half of trading to end the day up more than 1.1%, closing out the Dow’s biggest intraday reversal in 10 years. Thursday’s continued volatility extended the Dow’s streak of greater-than-1% swings to six consecutive days. While done several times this cycle, the index has only realized a 1% or greater gains in seven consecutive sessions once (October 2011) since March 2009. The S&P 500 and Nasdaq followed similar paths to more modest gains of 0.8% and 0.4%, respectively. Treasury yields were pushed and pulled about by the sharp reversal in the stock market. The 10-year yield closed down 4.1 bps after earlier falling 7.7 bps. The yield bottom and subsequent recovery coincided closely with stocks’ turnabout. The 2-year yield slipped a bit more (-5.2 bps) as investors continued to push the Fed to the sidelines in 2019, but it too finished off its lows (-7.3 bps.) Fed Funds futures implied a peak Fed Funds rate of 2.45% in September 2019, implying a roughly 25% chance of another rate increase, and small probability of a cut before 2020.

 

Overnight – S&P 500 in Search of First Three-Day Win Streak of a Dreadful December: Almost every major global equity index is stronger Friday after U.S. equities’ impressive reversal Thursday tacked on more gains to Wednesday’s cycle-best rally. The sole exception Friday was Japan, which saw its major indices close lower and the Nikkei, which is finished trading for 2018, notch its first negative year since 2011. Data showed an uptick in Japan’s unemployment rate to 2.5%, as-expected core inflation of 0.9% YoY, better-than-expected industrial production, and disappointing retail sales. As global equities have been beaten up in December, Japan’s 10-year yield has gradually declined and closed in negative territory (-0.01%) Friday for the first time since September 2017. As the rest of Asia strengthened, however, European markets opened higher and U.S. futures turned positive for the day. After falling 1.7% on Wednesday to a more-than-two-year low, the Stoxx 600 was up 1.7% and back near even for the week. Still, the index remains down 6.2% in December and on pace for its worst month since January 2016. European yields pulled back from their highs after several state inflation reports from Germany printed softer than expected. The national index, released subsequent to those reports, also cooled more than expected from 2.2% in November to 1.7% to end the year. Treasury yields had moved higher on the day but tracked the pull back in Europe, leaving most maturities modestly below Thursday’s close.

 

NOTEWORTHY NEWS

Consumer Confidence Tumbles on More Dour Outlook: The Conference Board’s Consumer Confidence Index dropped more than expected in December to a five month-low of 128.1. The 8.3-point drop from November was the largest single-month decline since July 2015 and was primarily caused by crumbling confidence about the future. The expectations index sank 12.8 points, the steepest monthly pullback since 2011, as consumers reported less confidence in each of the three forward-looking indicators. The difference between those expecting better business conditions and those expecting them to worsen fell to 8.6 points, the smallest since the election. A similar comparison of expectations for more jobs and fewer jobs also fell to a post-election low, with the drop-off in “more jobs” crowd the largest in 41 years (April 1977). The weakening of net expectations for income growth dropped to a five-month low. Recent market volatility may have played at least a small role as the difference between those expecting higher stock prices versus lower stock price slipped to its lowest level since April. The strong labor market helped keep the current assessment relatively steady despite consumers downgrading the current assessment of the business environment. The labor market differential (% jobs plentiful – % jobs hard to get) inched up to a new cycle high. The overall index is still healthy in a longer historical context but further deterioration, considering how important the consumer has been to recent economic strength, could become a concern if it begins to crimp future spending.