Mid Week Notes - December 26, 2018

Stocks Cap Worst Week Since 2008

That was the lead headline in Saturday’s Wall Street Journal. Comparisons to the financial crisis are worrisome. But are economic conditions similar today?

Then vs now

2008 Today
Subprime loan crisis Bond or junk bond bubble?
Credit markets were freezing up, sharply wider spreads Junk bond spreads over comparable Treasuries have widened, but otherwise, credit markets are functioning normally
Economy in freefall Economy slowing but expanding; leading economic indicators suggest further growth
Lehman collapses, bank failures, Federal takeover of Fannie, Freddie, and AIG Bank capital positions are much stronger
Employment falling sharply Employment is growing; weekly jobless claims remain near historically low levels
Corporate profits falling sharply Corporate profits forecast to rise in 2019
Overbuilding creates housing bubble; housing activity/prices in steep decline Housing activity has stalled; stronger lending standards in place reduce large foreclosure risk
Retail sales in decline; consumer confidence in sharp decline Retail sales are rising, auto sales have slowed; consumer confidence strong
China tariff worries abound

Source: Wall Street Journal, Bureau of Labor Statistics, U.S. Commerce Dept, Bloomberg, and various other sources

Investor’s Corner

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Some Meetings are More Important than Other Meetings - December 19, 2018

The Fed concludes its two-day meeting on Wednesday.

A rate hike of 0.25 percentage points to 2.25 – 2.50% for the fed funds rate is expected but isn’t a slam dunk.

  • The CME Group places odds at 75% (as of 12/18/2018).

  • Odds exceeded 90% during prior meetings when rate hikes were expected.

  • Lower odds reflect market and economic anxieties.

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Believe At Your Own Risk - December 18, 2018

We’re about to enter that exciting time of year when all sorts of market predictions are made by people who are mostly claiming that they knew the future and have accurately predicted it over a great track record. If you’re smart, you’ll turn off the TV or move on to the next article.

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China on My Mind - December 17, 2018

Stock market investors have become fixated on China. Positive headlines spur rallies, negative headlines encourage selling. Earlier last week, encouraging comments from the Asian giant regarding trade pulled short-term investors into the market. Upbeat remarks from the Trump administration also aided the backdrop. At week’s end, disappointing Chinese economic data forced a Friday selloff.

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The Holiday Blues - December 14, 2018

Christmas is upon us. So far, a Santa Claus rally has been elusive.

What’s needed to help equities stabilize? Today’s environment is fluid, but let’s look at four ingredients.

  1. Clarity on trade

  2. Data that signals continued growth

  3. A more flexible Fed

  4. Stable oil prices

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