Holiday Season Can Wait: Packed Calendar Includes Fed, Earnings, Tariff Deadline

A blowout jobs report is in the rearview mirror, while a Fed meeting and a major tariff deadline loom in the front windshield. It might be the holiday season, but there’s plenty to keep investors from sleeping at the wheel over the next few days.

Stocks had a weaker tone heading into Monday’s session after soft export data from China (see more below). That data appeared to weigh a bit on crude prices, which are down after having their highest close since September on Friday. The fact that they closed so high might also be taking a toll, however. Maybe some investors think crude got out over its skis too much. 

Before you head to the holiday parties, you might want to keep things in focus over the next few days as we have a Fed meeting, a handful of key earnings reports, and some inflation and retail sales data coming down the pike. Oracle Corporation ORCL, Costco Wholesale Corporation COST and home builder Toll Brothers Inc TOL are on the calendar. TOL kicks things off this afternoon and maybe providing helpful insight on trends in the luxury housing market. Keep in mind that TOL saw unit orders fall in its prior quarter, so we’ll see if that metric bounced back.

The Fed, meanwhile, gathers in Washington tomorrow and announces its rate decision Wednesday afternoon. It also releases a new “dot plot” showing where Federal Open Market Committee (FOMC) members expect rates to go over the next couple of years. The futures market shows almost no chance of a rate move (see more below). Producer and consumer price data later this week might help investors and the Fed get a better handle on the inflation picture.

Another item looming large is the Dec. 15 U.S. tariff deadline affecting more than $150 billion in China’s exports. While most analysts expect that deadline to get extended, we’ve had our share of surprises before. Some of the recent market strength could reflect hopes to see the deadline either changed or dropped, so if the week moves along without any sign of that happening, disappointment might work its way into the daily grind. China reported a drop in November exports Monday, another sign that the trade war continues to bite its economy.

Jobs Rehash

Usually the post-game show after a jobs report is when analysts start finding holes to poke. Even the best headline numbers, like Friday’s 266,000, often hide some discrepancies down below. Not necessarily the case this time, however. It was a really good report, and it’s hard to find any fault in it. You look across and say ‘What was wrong with this picture?’ And there seems to be nothing wrong with this picture. Having the three-month job growth average back above 200,000 (with revisions to September and October) is pretty amazing.

The other good trend we’re seeing—which we saw the last couple of months and continuing with November’s report—is growth in the transportation and warehousing areas. That just relates to the health of the consumer and these goods being shipped. It’s nice to see the continued confirmation of how healthy the consumer is.

Another thing about the report is that arguably, it allows the Fed to do what it’s  been talking about, which is sit back and observe. It also should clamp down any remaining talk about a recession potentially being around the corner, though recessions are part of the economic cycle and can never be completely ruled out. 

Despite all that, investors seemed unwilling to follow through Friday’s early Treasury market sell-off, with 10-year yields climbing quickly and then circling around the 1.84% mark for most of the day before falling below 1.83% Monday morning. That’s about the middle of the recent range.

“Feel Good” Friday

In the “dog bites man” department, cyclicals out-performed “defensive” sectors Friday after that impressive jobs report. That’s not surprising when you consider that cyclicals would often tend to benefit more than other companies from a firm job picture that puts more money in consumers’ pockets, especially around the holiday season. A solid showing on Friday’s consumer sentiment report and hopes for progress on the trade front might have also helped cyclicals, Briefing.com said. 

Financials placed second on the scoreboard Friday behind Energy, which charged ahead after OPEC announced a crude production cut and crude rallied to finish the week above $59 a barrel. Consumer Discretionary, Industrials, Technology, and Materials all had strong finishes, too. Utilities and Real Estate brought up the rear.

Apple Inc. AAPL, Nike Inc NKE, and JPMorgan Chase & Co JPM set new all-time highs Friday. They’re all components of the Dow Jones Industrial Average ($DJI), which had the best day of the major indices. Small-caps, however, weren’t far behind.

The one disappointment, if you can call a day like Friday disappointing in any way, was the S&P 500 Index’s (SPX) failure to take out technical resistance at 3148 before the end of the session. It finished at just under 3146 and starts the week less than 1% below all-time highs.

Caution Flag In Sight?

What’s kind of interesting to see is how gold and volatility continued to hold their own even as stocks rebounded from Wednesday through Friday last week. Gold is down from recent highs above $1,500 an ounce, but at $1,464 remains way above its 200-day moving average of $1,407. Volatility, as measured by the Cboe Volatility Index (VIX) came down substantially from highs near 18 early last week to finish below 14 by Friday evening. Still, that was well above recent lows below 12.

Could this, along with continued strength in the bond market, tell us something about investors? Are they still cautious? It’s debatable. Because while it’s easy to say that gold and bond selling appear to get met with buyers on the way down, the same is true for stocks. Any dip in equities lately seems to find buyers. Look how quickly the stock market bounced back after the losses early last week. That’s not what you’d call a sign of caution.

This has been a great year for stocks. There’ve been some downdrafts, but none has lasted too long and bears had to be quick to take advantage. Lately, even some companies that missed on earnings didn’t get hit too hard. Others rallied when news seemed kind of thin, as we saw Friday with Starbucks Corporation SBUX. Maybe people think shoppers will pick up an extra mocha when they look for holiday presents.

CHART OF THE DAY: YIELD MOTOR SPUTTERING: This year-to-date chart of the 10-year Treasury yield (TNX-candlestick) shows it remains well below its 200-day moving average (blue line) despite the recent rally toward all-time highs in the stock market. A sign of investor caution? Maybe not. It’s more likely a reflection of lower bond yields overseas that keep investors dipping into the market for higher-yielding U.S. product, many analysts say. Data Source: Cboe Global Markets.Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Insurance Check? Odds of a rate hike this week didn’t rise in the futures market after Friday’s explosive jobs report, remaining about as close to zero as you can get. In addition, there’s actually a school of thought that suggests one more rate cut might come sometime in the first half of 2020. Those who tout this theory say the Fed isn’t going to want to make any moves too close to next November’s presidential election, so it might decide to slot in a little more of an “insurance” easing before it gets late in the year. That’s reflected in the futures market, which shows about a 40% chance that by June, rates will be 25 basis points or more below the current level of between 1.5% and 1.75%. That figure of 40%, as tracked by CME Group futures, didn’t move much after the jobs report, by the way.

Goldman Roll: For market bulls, the Financial sector’s performance Friday had to feel encouraging. Higher yields in the bond market probably helped give banks an early lift. Looking a little closer at the banks, Goldman Sachs Group Inc GS had a really nice day Friday on reports it could end up paying less than $2 billion to resolve criminal and regulatory probes over its role in raising money for scandal-ridden Malaysian investment fund 1MDB, The New York Times said. That payment would be less than some analysts had expected, and also it would probably be good for the company to have this issue out of the way and not come up every time people talk about it. All of that helped reinforce gains for GS.

Cheering the Refs: Speaking of the Fed, those guys don’t get too many pats on the back. They’re kind of like the referees of the stock market, always in the background and never getting cheered but sometimes getting booed. Maybe it’s time to give them a little credit, and not just for the fact that inflation remains tame. This jobs report didn’t happen in a vacuum. The Fed raised rates a year ago this week, then sat back, decided that the situation warranted some easing, and proceeded to reverse course. When stocks wilted in the summer heat after the Fed’s first cut in July, Fed Chairman Jerome Powell and company took it on the chin again.

What people often forget is that rate cuts take a while to work their way through the system. People usually want instantaneous returns. Well, maybe all the things the Fed has done this year have worked their way through the system or are working their way through the system in a better way. And now it looks like the Fed can sit back, wait a little bit and see what happens. Of course few will cheer, but maybe the FOMC members can throw themselves a nice holiday party after this week’s meeting.

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Image by Ahmad Ardity from Pixabay