Historic Events

This week can be marked as historic with Democrats from the House of Representatives, led by House Leader Nancy Pelosi, announcing two articles of impeachment, abuse of power and obstruction of Congress, against President Trump. This was long anticipated. But in an odd act of timing, Leader Pelosi followed one hour later with a press conference indicating the House is likely to pass an amended and long-delayed USMCA trade deal. Earlier this week, The Washington Post exposed a confidential trove of government documents showing that, throughout an 18-year campaign, senior US officials failed to tell the truth about the war in Afghanistan, made pronouncements they knew were false and hid evidence from the press and the American public that the war had become unwinnable. In short, Washington DC is all abuzz.

This week will continue to be busy since it includes the December FOMC meeting, a December 12th UK parliamentary vote, the results of which could determine the fate of Brexit, EU monetary policy and the debut press conference of the new head of the European Central Bank, Christine Lagarde. Key economic reports on the CPI, PPI, import and export prices and retail sales will also be released. We do not expect any change to monetary policy in December, so the key report of the week is apt to be November’s retail sales report. This release should have preliminary data for Black Friday sales, but it will not include Cyber Monday online sales which are reported to have totaled $9.4 billion, up nearly 19% YOY according to Adobe Analytics. Estimates for Black Friday sales are currently $7.4 billion. All in all, these retail sales numbers point to the start of a healthy holiday selling season and it bodes well for the fourth quarter economy.

Employment is Better than Expected

November’s payroll numbers also suggest the economy is doing better than many economists have been predicting. Job gains for the month surged to 266,000, their best performance since January, while revisions to the two prior months added 41, 000 more jobs. Although the reversal of October’s auto strike losses was expected to add 54,000 jobs to the month, payroll gains still exceeded 200,000 in November. This was an impressive increase since the usual holiday lift in retail payrolls failed to materialize. Employment gains in November were strongest in healthcare and professional and technical services. See page 3.

Our favorite job statistic is measuring year-over-year growth in both employment surveys. The establishment survey had a 1.47% YOY increase in jobs in November, slightly below its long-term average of 1.77%. The household survey had a 1.14% YOY increase in jobs, just under its long-term average of 1.5%. In fact, both surveys have exhibited below average growth for most of 2019, even though the pace of employment gains have been positive and steady. Yet slow and steady is much different from a sharp deceleration in the rate of job growth; deceleration is a typical precursor of a pending recession. But this is not a concern today. In the 12-months ended in November there have been 2.2 million new jobs created and this contributed to a 3.5% unemployment rate which matches September 2019. These are the lowest unemployment rates since the 3.4% reported in June 1969. See page 4.

November’s participation rate of 63.2% is only slightly above the September 2015 low of 62.4% and this lackluster performance is due to Baby Boomers leaving the labor force. Baby Boomer retirements mean this ratio is unlikely to improve in the years ahead. Conversely, the employment population ratio was 61% in November and has moved steadily higher since its July 2011 low of 58.2%. This is an indication of a strengthening labor market. The fact that the percentage of people who are not in the labor force but want a job was 4.7% in November, close to previous month’s all-time low of 4.6%, is another sign of a strong market. See page 5. Historically, a 3-month average of job gains or losses has had a strong correlation with consumer confidence. In November the 3-month average job gain rose from 189,330 to 205,000; confidence is also rising. This relationship has been stronger than that of the unemployment rate and GDP. See page 6. November’s average hourly earnings grew 3.7% YOY, an acceleration over the 3.4% YOY rate seen a year ago. Average weekly earnings rose 3.0% YOY in November which is down from the 3.4% YOY pace seen in November 2018. In sum, November marked a deceleration in the pace of weekly earnings growth, but the rate still well above the 2.2% YOY pace seen between 2011 and 2016. See page 7. Based upon this, it is no surprise that consumer confidence is on the rise.

Trade is Better than Expected

Trade data also points to fourth quarter strength. The trade deficit narrowed from $51.1 billion in September to $47.2 billion in October, the second consecutive monthly decline and the fourth decline in the past five months. On an annualized basis, the trade deficit is running at 4% of GDP versus the 4.25% of GDP recorded in 2018. See page 8. Most of this improvement in the deficit is the result of declining trade with China. The US trade deficit with China is running at 1.6% of GDP this year versus 2.04% in 2018. Some of this falloff with China is becoming a boon for other countries. Trade is expanding with countries in the European Union, Japan and Canada; but Mexico has been the biggest beneficiary of the trade war. Imports from Mexico are up 4.5% and exports have declined 2%, year-to-date. As a result, the trade deficit with Mexico is running at 0.48% of GDP versus the 0.39% seen in 2018. Another factor improving US trade is energy. This can be seen by the fact that in the first 10 months of 2019, the US is experiencing a $7.7 billion surplus with OPEC nations. See pages 9-11.

Technical Indicators Continue to be Strong

After strong advances from the mid-October lows to December’s record highs, the popular indices are consolidating this week. But trends remain favorable and indices are trading above all moving averages. The Russell 2000 index has been our biggest concern in 2019 since it has lagged the larger capitalization indices most of the year. However, the RUT has broken above the 1600 resistance level and it continues to hold above this level which is bullish. See page 13. The 25-day up/down volume oscillator is at 0.83 and is neutral this week. But the last reading in this indicator was a five-day overbought reading, the fifth such reading in 2019, which represents a bullish pattern of solid buying pressure. See page 14. Average daily new highs remain above 100 per day and average daily new lows remain below 100 per day, which is classically bullish. The NYSE cumulative advance decline line made an all-time high on November 27th confirming the new highs in the indices. And last, we are encouraged that sentiment indicators remain in neutral territory even as the market continues to climb to new heights. In short, there are no signs of excessive optimism that tends to mark major bull market peaks.


Economic data including reports on jobs, trade, sentiment, housing, and GDP continue to show a stellar US economy led by a consumer supported by the best job market in years. This bodes well for the fourth quarter economy and for earnings. We continue to believe that our 2020 SPX target of 3300 could prove to be conservative.

Next week we will publish our Outlook for 2020 on Wednesday December 18th.

November’s payroll gain of 266,000 jobs was strikingly strong even after adjusting for the 54,000 job increase attributed to the UAW settlement. Moreover, revisions added 41,000 jobs to the prior two months. The 6-month averages rose to 196,330 in the establishment survey and to 305,830 in the household survey.

Regulation AC Analyst Certification 

I, Gail Dudack, hereby certify that all the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific views contained in this report. 




“Overweight”: Overweight relative to S&P Index weighting 

“Neutral”: Neutral relative to S&P Index weighting 

“Underweight”: Underweight relative to S&P Index weighting 

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