Markets tread water last week. Economic data was mixed. European growth offset Chinese weakness. While U.S. data was generally bullish. Chinese stocks continued rallying from recent lows. Fortune cookies read "Buy!"
Earnings season continues. Teeing up the worst results since 2009. Earnings have been higher. But revenues have looked less ideal than the Tijuana Ballet. Large growth stocks have drastically outperformed their value-oriented peers. Putting almost 7 percentage points between them. Evidenced by the incredible recent performances turned in by internet and tech positions.
Friday's better-than-expected jobs report puts the Fed on track for a December tightening. The first in eight years. So bringing ZIRPS's termination within a palpable range. Accordingly, markets have sold off these last few days.
December 2015? March 2016? Whenever. Get it over with... Fed governors were never meant to become the financial market's Kardashians. Everywhere, all the time. And now that futures markets have, yet again, accepted the idea of a December raise? Get 'er done.
Of course, that's hardly a consensus.
In fact, TIS Group released a note last week purporting that the Fed should not raise rates. The main argument being that the U.S. economy is weaker than widely believed. And will continue to soften into March. Evidentially, they postulate three points:
1. Certain U.S. bellwether companies, including Wal-Mart and Caterpillar, have seen earnings shellacked. Caterpillar reported 34-straight months of declining global sales. 11 of which have included double-digit sales declines. Caterpillar is an indicator of U.S. economic health, as well as that of the global economy
2. According to FactSet, U.S. corporate revenues fell 1.6% in Q4 last year; fell 2.8 percent in Q1 this year; fell another 3.3 percent in Q2 this year; and the forecast for Q3 this year is -3.35. The last time the U.S. corporate sector had four straight negative revenue quarters was 2008-2009. Did the Fed hike rates during that period?
3. Orders for rail cars have massively declined. New freight car orders in Q3 were down 83 percent year over year. The worst short-term decline in 27 years. The last year when rail car orders fell out of bed was 1988. A year after the market crashed 20 percent in a single day. And the Fed was in a holding pattern while the Bank of Japan reflated its economy, creating an enormous debt bubble from which that country is still trying to recover.
TIS Group concludes that U.S. economic reports over the next six months will be disappointing. Perhaps requiring additional stimulus. Making it absurd and unlikely that the central bank would lift rates. But, stranger things have happened.
Either way, it makes for an interesting Christmas.
Speaking of which, the holidays came early for Republicans. Last week's off-year election provided a dim electoral view of the state of the nation. One that has warning bells ringing in the K-Street offices of Democratic strategists. Nationwide, Democratic pet issues were voted down. Even as Republican candidates were voted in.
Matt Bevin's Kentucky gubernatorial victory was big news. Especially as polls had him losing headed into election day. Bevin ran against Obamacare. Rejected political correctness. Was told repeatedly he'd lost. Till he'd won.
Moreover, a host of issues that the media purported inevitable were struck down. Sanctuary cities. Legalized marijuana. Gun control. $15 minimum wage. Among others. In all, the day featured a wholesale rejection of numerous issues already painted as "orthodoxy" by the blathering punditocracy. Who'd ignored the polls portraying that over 64 percent of the electorate believes the nation is on the wrong track.
Next November's main event just became even juicier.
Bottom line? Stocks rebounded of their August/September lows. With the S&P 500 closing back above its 12-month average to end October following a two-month trip below. Which traders view like Pooh does honey. We'll likely see another near-term pull back. Especially as Wall Street comes to accept the end of the ZIRP era. But, there remains a chance for a year-ending Santa Claus rally. And it won't take much of a catalyst. So stay tuned.
Major markets finished rose last week. The DJIA gained 1.40%, the S&P 500 added 0.95%, and the Nasdaq climbed 1.85%. Small cap stocks added 3.26%. And the 10-year Treasury bond yield rose 18 basis points to 2.33%. Gold lost $53.22 per ounce, or -4.66%.