2 Day Winning Streak
Just like last month, the stock market is following a losing streak with a winning streak as it is up for 2 straight days. The calendar effect might be helping stocks as December is usually a great month. Interestingly, following years with gains of 20% or more, the average annual return is 13%.
Next year could be another solid year. Obviously, the election will be the biggest issue in 2020. I’m completely ignoring economists’ calls for a recession in the intermediate term because I think growth is bottoming. In a Wall Street Journal poll, over 60% of economists predicted a recession would occur in 2020 or 2021.
If there is a recession in 2021, stocks would likely decline next year. I’m not expecting that though. If there’s not a recession in late 2019 or early 2020, there won’t be one in the next few years because growth will rebound.
A trade deal is still in focus. 2 sides are disagreeing on how much American agriculture China will buy. Specifically, President Trump is trying to get China to purchase between $40 and $50 billion in farm goods per year. That's much more than the $8.6 billion the country bought in 2018.
It’s probably a good sign that the details are coming out. If that’s the only hold up, maybe we might see a deal in the next few weeks. President Trump stated trade talks are going “very well.” He stated that, he “believes if both sides reach a phase-one agreement, relevant tariffs must be lowered.”
Recent volatility made the market less overbought and took some of the froth out of it. CNN fear and greed index stayed at 67 (greed) on Thursday. AAII investor survey hadn’t been showing any signs of euphoria. But it’s not a bad thing to see the percentage of bulls fall further.
As you can see from the chart below, the percentage of bulls fell 1.9% to 31.7%. That’s significantly below the historical average of 38%. Percentage of bears also fell; it was down 1.1% to 29.1%.
Details Of Thursday’s Action
Nasdaq and Russell 2000 increased 5 and 6 basis points. S&P 500 did the best as it increased 0.15%. It is only down 1.1% from its record. VIX was down 0.28 to 14.52. It was only above 15 for 1 day. Costco stock actually fell 1.15% despite its great November same store sales reading. It’s possible the whisper number was higher. The stock is up 43.14% year to date.
3 down sectors were energy, consumer staples, and consumer discretionary. They fell 0.5%. 0.19%, and 0.22%. Best performers were tech, communication services, and materials which rose 0.39%, 0.39%, and 0.66%.
The latest Democratic primary poll was from California. It was great for Sanders as he led it. Sanders was at 24%, Warren was at 22%, and Biden was at 14% (which was low for him). It will be interesting to see who gets the 7% support Harris had in this poll as she dropped out earlier this week. I think this election will be a long slog.
If Warren drops out early in the election process (say in March), it might be a retake on 2016 with Sanders versus Biden instead of Sanders versus Clinton. I’m also predicting in the next few days either Yang or Gabbard will get the one poll they need to make the debate on the 19th.
Job Cuts & Hiring Announcements Fall
November job cut report was more of the same. Job cuts fell slightly and signal no sign of a recession. But 2019 as a whole has been a weaker year than 2018. Hiring announcements fell sharply, but that’s because of seasonality; they were actually up compared to last November.
Specifically, monthly cuts fell from 50,275 to 44,569. That’s a 11.3% monthly decline and a 16% yearly decline. In 2019, total cuts were 559,713 which is 13.1% higher than last year. Total cuts are already the highest since 2015 and there’s still a month left. There were 598,510 cuts in 2015. I wouldn’t be surprised if this year surpasses that one. But it still won’t mean there will be a recession.
As you can see from the chart below, the direction of cuts has been lower in the past few months. 6 month average of the yearly growth rate has gone negative after it was about 70% early this year.
The comment on this report was the following: “Employers did not make large-scale job cut plans in November. While concerns of a downturn may linger, consumer confidence is strong and companies are holding on to their employees in a tight labor market.”
Job cuts are supposed to lead the job market. If that’s the case, then the labor market should be fine in 2020. Tech had the biggest increase job in cuts in 2019 as they went from 13,222 to 63,447.
Hiring announcements fell from 190,835 to 19,063, but that’s because of seasonality. The holiday temp hires have already occurred. Hiring growth was positive on a yearly basis as there were 15,422 announcements last year. In 2019, there have been 1.181 million hires which is up from 1.018 million in 2018 and there’s still one month left. Because of seasonal factors, I don’t think there will be that many hiring announcements next month.
Conclusion
The stock market is neither overbought nor oversold even though it is near its record high. Action in the next few days will depend on the jobs report. The past 2 weeks of jobless claims have been very strong, job cuts fell, but the ADP report showed weak private sector job creation. I’m predicting between 100,000 and 130,000 jobs will be added.
If there are less than 100,000 jobs added, stocks will fall. If the labor market added between 100,000 and 200,000 jobs, stocks will rise. Stocks might fall if there were over 200,000 jobs added especially if wage growth increases. Lately, we’ve seen weakness in nominal wage growth as inflation has been falling.