As the classic 1888 baseball poem goes, there was no joy in Mudville this week. On top of last week’s 2% loss, equities gave back another 4% or so this holiday-shortened trading week. Oil prices plummeted 7.8% on Friday (and about 13% for the week) to settle at $50.39/bbl. or 34% off its October high of $76. Oil traders were hard pressed to find reasons for the plunge other than some signs of slowing demand as the global economy is taking a pause and being on edge ahead of an important OPEC meeting on December 6. Needles-to-say, oil and gas stocks led the parade, giving back 5.2% on average. The Energy Select SPDR ETF finished the week at a new 52-week low. Elsewhere, technology stocks – led by the FAANG group – also surrendered some 5.2%. There was some bidding, however, in the more safe-haven sectors, as utilities and consumer staples were negative by 1.3% and 2.2%, respectively.
GDP growth, which has averaged a pedestrian 1.5% to 2.5% for much of this decade, increased by 4.2% and 3.5%, respectively in the second and third quarters, and should lift growth for the full year at a respectable 3%. Corporate earnings have been well received, but these are back-looking statistics and Wall Street is eyeing ahead into 2019 and beyond for some guidance. While fiscal policy has been boosted by corporate and individual tax cuts, the monetary policy by the Federal Reserve has investors on the sidelines. A November 30 G20 meeting in Buenos Aires between Presidents Trump and China’s Xi Jinping may bring some positive developments in the trade war between the two countries, but an all-out solution may be far off. And the Fed is likely to raise short-term rates at its December meeting, although there is speculation that it may slow down the pace next year from three hikes to perhaps two.
Key factors in the October-November slide have been worries about global trade, the slowdown in Europe and parts of Asia, political turmoil in the United Kingdom over efforts to save Brexit, fears the Fed might step too hard on the monetary brakes and the uncertainties over prospects of a divided government in Washington. Although these formidable headwinds cannot be ignored, the equities market should be able to ride them out if the economy continues to grow, trade tensions ease and the Fed doesn’t over reach. Indeed, the stock market ride will continue to be bumpy, but there still appears to be enough wind to its back to move slowly forward.
Here is the answer to last week’s trivia question: Office printer and copier company Xerox Corp., founded in 1906 in Rochester, New York, began life as? The Land Corp., Dataproducts, Inc., Haloid Photographic Co. or Harris Intertype Corp. Answer: The Haloid Photographic Co.
Today’s Trivia Question: According to investment services firm Edward Jones, holiday sales will increase 5% from last year. Barron’s predicts consumers will spend about how much on average over the upcoming holidays? $395, $472, $533 or $658.