One Year Later - December 18, 2019

A year ago, stocks were in the middle of a serious correction, with the S&P 500 Index2 losing nearly 20% over three months (St. Louis Federal Reserve).

  • Fears of a Fed policy mistake that would lead to a recession were overblown but rampant.

Last year’s selloff was one of 38 market corrections of at least 10% since 1980 (LPL Research). When a recession is avoided, returns one and two years later are almost always higher.

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Profits and Stock Market Performance - December 16, 2019

It’s been said that profits are the mother’s milk of stock prices. Think about it. If you decided to purchase a small, privately held company, the valuation would largely be determined by the current and expected income the company generates.

While various factors play a role, the same can be applied to a publicly traded company and the general level of a major market index.

That said, Table 1 reviews annual S&P 500 earnings growth (EPS—earnings per share) and compares it to the annual return of the S&P 500 Index.

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The Fed, the Consumer, and Trump - December 11, 2019

The Fed has lowered its key rate three times since July to a range of 1.50-1.75%. On Wednesday, it’s widely expected the Fed will hold rates steady.

  • As we enter 2020, Powell is determined to prevent the economic malaise in Japan and Europe from washing up on our shores.
  • While the consumer remains strong, monetary ammo in the Fed’s toolbox is limited.

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When Good News Is Good News - December 9, 2019

The U.S. economy generated a surprisingly strong 266,000 new jobs in November. The jobless rate fell from 3.6% to 3.5%, tying a 50-year low per the U.S. Bureau of Labor Statistics.

The graph below is a three-month average of nonfarm payrolls, which helps iron out monthly volatility. Note the acceleration over the last four months.

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Shake and Bake - December 4, 2019

As we entered the fall, positive headlines on trade reduced volatility, and stocks moved to new highs.

  • In November alone, the S&P 500 Index2 closed at 11 new highs (St. Louis Federal Reserve S&P data).

What happens if the U.S. and China fail to conclude a trade deal? It may simply be public posturing designed to wring out concessions, but the president has a way of shaking things up from time to time.

  • On Tuesday, he said he liked “the idea of waiting until after the election” to reach a deal (WSJ).
  • He also suggested that he might take aim at other countries.

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