It took just a single sentence to change the sentiment that had gripped the US stock market for the last 2 months. In a speech last week Fed Chairman Jay Powell said that interest rates are “just below” where they are likely to settle for an extended period of time. Stock investors, previously stung by a comment made by Chairman Powell in October that interest rates at that time were a “long way” from their “neutral point,” jumped to the conclusion that the Fed may have only one more rate hike to go (occurring in December 2018) before stopping. By the stock market’s close last Friday (11/30/18), the S&P 500 had rallied to a +5.1% YTD result (total return) (source: BTN Research).
The threat by the US to raise tariffs on Chinese imports from 10% to 25% on 1/01/19 is now off the table. Instead the two countries on Saturday (12/01/18) agreed to negotiate for the next 3 months (until 3/01/19) with the goal of eliminating all existing tariffs. The best news for American businesses that sell globally was the Chinese pledge to purchase a “very substantial” amount of American exports going forward (source: White House)
The next 2-year session of Congress (the 116th edition) begins one month from today (1/03/19) as Democrats take control of the House under a Republican president for the first time since 2008. The “lame duck” session of Congress however only has until this Friday (12/07/18) to pass several spending bills for fiscal year 2019 to avoid our nation’s 15th government shutdown since 1980 and the 3rd during the Trump administration. Seven of the 12 agencies that require annual congressional approval of their budgets will not have funding beyond this Friday without a new spending bill (source: Congress).
Notable Numbers for the Week:
BIG BEARS - Since the end of World War II (1945), the 3 worst bears for the S&P 500 are: (1) 48% drop in 1973-74; (2) 49% drop in 2000-02; and (3) 57% drop in 2007-09 (source: BTN Research).
MY HOUSE, MY PIGGY BANK - “Cash-out refis,” i.e., a homeowner taking out a new mortgage that is larger than his/her previous mortgage and pocketing the difference, peaked in 2006 when American homeowners pulled out $320 billion of home equity during a rising housing market. Homeowners pulled out just $15 billion of their home equity through “cash-out refis” in the 3rd quarter 2018 (source: Freddie Mac).
SLOWING DOWN - The median sales price of existing homes sold nationwide increased +3.8% on a year-over-year basis through October 2018. That’s the smallest year-over-year growth in the median sale price in the USA since March 2012 (source: National Association of Realtors).
TARGET PRICE - The annual operating budget of Saudi Arabia, heavily dependent on the price of oil, required a breakeven crude oil price of $83 a barrel in 2017 and $85-$87 a barrel in 2018 (source: IMF).
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