December 2019 – Monthly Outlook – Can it Continue?

U.S. Equities closed the month of November near record highs.  The gains have been fueled by optimism that U.S.-China trade issues will be resolved amicably.  I remain skeptical of this. This can clearly be seen in the divergence of consumer confidence and CEO confidence.  Consumers tend to be more near-term focused, while CEOs have to make plans for staffing, capital expenditures and investments going out a year or two. Clearly CEOs are concerned.

12.4.2019_MONTHLY_OUTLOOK_CHART_1

Also, while consumer confidence remains significantly higher than CEOs, “Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

One key economic indicators I follow is the Leading Economic Indicators (LEI).  While month-to-month changes can be caused by “noise”, I watch the longer term trends.  Here are notes on the most recent report for October 2019:

  • “The US LEI declined for a third consecutive month, and its six-month growth rate turned negative for the first time since May 2016. The decline was driven by weaknesses in new orders for manufacturing, average weekly hours, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The major difference this month is the softening in the labor market, whereas conditions in manufacturing remain weak and show no signs of improvement yet. Taken together, the LEI suggests that the economy will end the year on a weak note, at just below 2 percent growth.”

 

The fact that the 6-month growth rate has turned negative is concerning to me.

All told, I feel the US economy is slowing but will likely plod along at about 2% annual growth.  This is not the problem.

The problem is the financial markets, specifically US stocks, are reflecting a much better situation.  The term you might here is “stocks are priced for perfection”,  or “it’s a goldilocks market” meaning stock prices are reflecting positive outcomes to trade disputes, economic growth, monetary stimulus and consumer spending. How will the market react if any, or some, of these outcomes are not as positive?

For the last few months, I have been cautious and in a neutral position in portfolios.  Through the end of November, that posture proved too conservative.  However, stocks have declined by 2% over just the last three trading days, mostly because of new uncertainty around the trade situation. Just today, December 3rd, President Trump indicated he may wait until after the 2020 elections to push for a trade deal with China.  December 15th is a key date.  The US is set to impose new tariffs on China.  Will that happen? The market has been betting it will not. I’m not so sure.

I continue to believe the upside potential is less than the downside risk, at the moment. As such, we will remain neutrally positioned with a cautious bias. I would rather miss out on a small upside move to avoid getting caught in a swift downside adjustment.

P.S. Thank you for your referrals. They are making a big difference in my practice. Feel free to share my name with your friends on Facebook or LinkedIn.

December Calendar of Events   (comments and additions for future months are always welcome)

  • December is Universal Human Rights Day.  Let’s pray that all people, regardless of race, religion, gender, or nationality  can learn to treat others as we all wish to be treated.

 

December 10th            Human Rights Day   –  I have cherished the ideal  of a democratic and free society… it is an ideal for which I am prepared to die. – Nelson Mandela

December 15th            Healthcare open enrollment – for coverage starting Jan 1, 2020 – ENDS!   

December 19th            Christian’s birthday

December 21st                  Winter Solstice    –       The shortest day of the year and the start of winter

December 22nd           Happy Hanukkah  –    May it also be a festival of love, happiness, success, and health in your world now and always.

December 25th            Merry Christmas – have a wonderful holiday.  Let’s all remember the true significance of this day – the birth of Christ. 

 

Sources: The Conference Board, CNBC

 

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

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