The Week Ahead – Gone till December

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.

Welcome to December! Sell in May and go away is a famous Wall Street saying but this year one would have left a lot on the table. It’s hard to believe but the last time we saw the S&P 500 index provide a negative monthly total return was October of last year. Since then, the lowest returning month has been March with a 0.12% return. As we start December the S&P 500 has a chance to do something that it never has before, a calendar year with only positive monthly returns. There have only been four occurrences with just one monthly loss and the data is split; two of those years preceded corrections and two of the years saw markets continuing to extend.

One of last week’s highlights (besides Cyber Monday) was that the second estimate for third quarter U.S. GDP was revised up to 3.3% from 3.0%. This is the highest level in three years and if it holds, will be the first time since 2004-2005 that three quarters in a row were above 3%. The U.S. economy continues to trek forward. Additionally, the Senate passed their version of the tax reform bill late Friday evening and now it heads to reconciliation between the Senate and the House. The greatest policy differences between the House and Senate bills involve the Alternative Minimum Tax, the top marginal tax rate, pass-through treatment, corporate provisions dealing with cross-border transactions, and net interest deductibility. Even with the limited time left in the year, there is a high chance that tax reform legislation becomes law by year-end.

This week the Senate Banking Committee will vote on the Fed Chair nomination of Jerome Powell and the testimony he gave last week reinforced views that he represents continuity in FOMC leadership. President Trump additionally nominated Marvin Goodfriend to the Federal Reserve Board. Goodfriend is currently a professor at Carnegie Mellon University and is viewed more of a hawk in terms of monetary policy. Employment data will also be released and it will be interesting to see if the unemployment rate of 4.1% can be maintained. 

Data deck for December 2 – December 8: