Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.
With markets being so volatile, there is a sudden and predictable increase in the evocation of the dreaded r-word: recession. This is understandable as the stock market is seen as a discounting mechanism, and it often sees trouble before the data prove it correct. But, it’s important to recognize the market often sees trouble where it might exist. There have been six corrections (declines of at least 10% from recent highs), and two more extremely close calls since the Great Financial Crisis of 2008. Most of these corrections have been very short-lived buying opportunities. Each time a logical, rational reason is assigned to the pull-back. However, for each of these corrections, the worst case scenario discounted by the stock market did not come to pass, and the market found its way to subsequent new highs.
|
Year |
Market Decline |
Reason Given |
|
2010 |
-16.0% |
European debt crisis |
|
2011 |
-19.4% |
European debt crisis & U.S. credit rating downgrade |
|
2015 |
-12.4% |
Brexit (U.K. votes to leave European Union) |
|
2016 |
-13.3% |
China potentially experiencing a severe growth recession / hard landing |
|
2018 |
-10.2% |
Fear of inflation |
|
current |
-10.2% |
Higher interest rates / trade war |
To be clear, we do not foresee a recession coming in 2019. Even though earnings growth for S&P 500 companies is expected to slow next year, we still expect earnings-per-share growth of 9% year over year. Indeed, the U.S. has never had a recession when corporate profits have been growing. Although the backdrop is shifting somewhat from a higher growth regime to one marked by lower growth, it is too early to call the end of the bull market. As predicted, economic growth is slowing back to trend. Growth with a 2-handle is enough to keep the job market and the economy at large on solid footing.
This week we will be keeping a wary eye on the weekly jobless claims as this is often an excellent leading indicator of economic health. Unemployment claims have been on a downward trajectory since 2009, but recently printed a six-month high of 234,000 (still a very low level), and it may just be statistical noise. Given the weakness in trade and housing, it’s something to be watched closely.
Data deck for December 10-14:
|
Date |
Indicator |
Period |
|
Dec. 10 |
Job openings |
Oct. |
|
Dec. 11 |
Producer price index |
Nov. |
|
Dec. 12 |
Consumer price index |
Nov. |
|
Dec. 12 |
Core CPI |
Nov. |
|
Dec. 12 |
Federal budget |
Nov. |
|
Dec. 13 |
Weekly jobless claims |
12/8 |
|
Dec. 13 |
Import price index |
Nov. |
|
Dec. 14 |
Retail sales |
Nov. |
|
Dec. 14 |
Retail sales ex-autos |
Nov. |
|
Dec. 14 |
Industrial production |
Nov. |
|
Dec. 14 |
Capacity utilization |
Nov. |
|
Dec. 14 |
Business inventories |
Oct. |
