November 30, 2018

Lots of big news this week brought with it a lot of speculation and pure guessing often clouded by ideology or people talking their book.   I want to look at some facts as we wrap up the week and look ahead.

The big corporate news from General Motors (GM) was painted as a negative for the economy, or a cautionary take on steel tariffs.  While there were extra costs, the facts are in the last quarter when the company had a $5.0 billion reversal in net income from a year earlier.

What’s hurting GM is poor management, perhaps hamstrung by lingering issues with its bailout?

Market share has declined rapidly in the United States and China, with the sharpest declines in trucks and crossovers which might explain why some of those workers might be laid off.

Then there’s the state of the consumer and inflation, which I can only call perfect.  At start to the year incomes waned, spending plunged, but inflation was edging higher.  More recently incomes and spending have soared, while inflation has declined. 

This brings us to the Federal Reserve, which realized strong job growth doesn’t mean instant inflation.  In fact, earlier this week the San Francisco Fed published a paper on a-cyclical inflationary pressure which has nothing to do with the labor market.

Today, NY Fed chief, John Williams, joined the chorus on rates being near neutral, so Fed risk is off the table for sure.

But there is also something to worry about when it comes to the economy and stock market, so beyond the G20, what are those hurdles?

Market

Looks like stocks are going to meander until the last few minutes of trading, where it will be interesting to see if buying emerges.  Like Tuesday, I think the greater risk is to have less exposure, than more, to the market potentially gapping higher on Monday.

Meanwhile, more signs of a robust US economy the Chicago PMI soared way passed expectations driven by strongest new order spike since May 2014.

Chicago PMI