Probability of
Federal Reserve
increasing interest rates by 12/18-12/19 FOMC meeting

by 1/4%:  76%
by 1/2%:  38%

* * * *

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-11/12/18 update--next update Monday 11/19/18-

    Stock prices advanced last week.  Select U.S. index weekly point changes were:  +718.47 Dow, +57.95 S&P500, and +49.91 for the Nasdaq.  The 10yr. treasury rate declined  -0.02 to 3.19%.

Last week:

    Positive stock market reaction to the prospects for divided government after the mid-term elections lasted through Thursday.  Since 1970, the average post-mid-term stock market reaction has been to rally by +13.6%.

    On Friday, the release of  October Producer Prices showed a jump in inflation that was well above analysts' forecasts.  The stock market gave back some of the week's strong gain after the report anticipating that it would cause greater pressure on the Federal Reserve to raise future interest rates through 2019.

This week:

    In observance of Veterans day, the bond markets are closed on Monday.

    Wednesday's Consumer Prices report for October will be closely watched for signs of accelerating inflation after last Friday's report showing monthly  Producer Prices jumping +0.6%.

    After the market closes on Wednesday, end-of-the-week market trading will be influenced by Fed Chairman Jerome Powell's broadcast discussion of national and global economic issues with Dallas Federal Reserve Bank President Robert Kaplan.

    On Thursday, the focus will also be on Retail Sales during October ahead of the coming holiday sales season.  Consensus calls for sales to rise +0.6% above September's level.             

    A number of important economic data reports will influence this week's markets: [those with the most market moving potential are highlighted]  Monday- Bond market closed; Tuesday- NFIB Small Business Optimism Index, Treasury Budget; Wednesday- Consumer Prices; Thursday- Phila. Fed Business Outlook, Retail Sales, Empire State Manufacturing Index, Import/Export Prices, Business Inventories, Fed Balance Sheet, Petroleum Reserves, Jobless Claims; Friday- Industrial Production, Treasury International Capital.

    Our technical system's score for the market's valuation fundamentals remained at +7 (range 0 to +10), which is in the "positive" range for the future.  Please note that this technical score does not incorporate any of our measures for positive/negative market psychology, which can be highly volatile.  Last week, it remained in the "neutral" range for the near-term.  (As always, the near-term direction of the market will be affected by the outlook for Federal Reserve action, the favorableness of economic data releases, earnings releases, analysts' forecast updates, and finally international events and governmental action.)

The "Portfolio Detail and Activity" section of our website is updated on the day after any trading activity.


Select Economic Data Releases:

 Gross Domestic Product

     The 1st estimate for Q3 GDP was +3.5%, which beat the consensus forecast.  The consensus forecast was +3.3%.  --The 2nd estimate for Q2 GDP was revised higher to +4.2%.  The first estimate for Q2 GDP came in at 4.1%, matching expectations for a strong increase driven by consumer spending.  The final 2017 Q4 GDP report beat consensus improving to +2.9%.  The second estimate for Q4 GDP matched consensus calling for it to be revised to +2.5%.  The 1st estimate for Q4 GDP showed solid growth at +2.6%.  The third estimate for 2017 Q3 GDP eased slightly to +3.2%, which is still strong.  The second estimate for Q3 GDP improved to +3.3%.  The first estimate of Q3 GDP rose +3.0% with strong spending.  The final estimate for Q2 GDP estimate improved to 3.1% confirming a strong quarter driven by improving 3.3% increase in consumer spending.  The second estimate for Q2 GDP improved to +3.0%.  The first estimate of 2017 Q2 GDP showed improvement to +2.6%.--

Employment Data

     October employment grew by a very strong 250K, which was well above the consensus forecast.  The ADP report for private payroll growth also beat consensus with a +227K gain.   --The employment report for September was mixed with a below consensus 134K new job hires and unemployment falling to 3.7%.  The August employment report was very strong beating consensus with 201,000 new hires and the Unemployment Rate holding steady at 3.9%.  The July employment report showing 157,000 hires was below expectations, but is still at a healthy level that will absorb new job seekers into the labor market.  The Unemployment Rate ticked down to 3.9%.  June employment added a healthy213K to payrolls reflecting continuing economic strength.  The Unemployment Rate increased to 4.0% due to more people thinking it is a good time to look for work.  May's employment statistics came in well above consensus showing +223K new job hires with the Unemployment Rate falling to 3.8%.  April employment hires of 164K was well below analysts' 190K consensus forecast.  Consensus calls for +187K new hires.  March employment hires reported were a modest 103,000, which was well under the consensus forecast.  February's employment report showing a very strong 313K hires with tame wages greatly exceeded analysts' consensus expectations.  The unemployment rate remained 4.1%.  January's employment data showed a strong gain above consensus at 220,000.  Consensus had called for 170,000 new hires.  Year-over-year earnings growth measured +2.9%.  December's employment report came in below consensus at 148,000 new hires, but still remains at a healthy level.  November employment data showed good growth well above consensus with 228,000 new hires.--

Retail Data

     This week on Friday, October Retail Sales will be released.  September Retail Sales was weak for September rising a well below consensus +0.1%.  --August Retail Sales data rose just +0.1%, but July's figures were revised upward to keep overall Q3 consumer spending strong and at a healthy level.  July Retail sales rose +0.5% and reflects strength in consumer spending and labor market underpinning the good economic growth.  The June Retail Sales report matched the consensus call for a strong +0.5% gain that will have a positive affect on Q2 GDP.  May's Retail Sales showed a strong increase that reflected broad gains in current consumer spending.  April Retail Sales report showed moderate +0.3% growth matching the consensus forecast.  March Retail Sales rose +0.6% and was the first decent monthly gain for the Q1.  Retail Sales for February declined -0.1%, which was again weaker than consensus.  Retail Sales for January fell -0.3%, which was well below consensus expectations for post-holiday consumer spending.  Retail Sales for December rose +0.3% finishing a good holiday shopping season for 2017.  November Retail Sales up +0.8% were strong to start off the holiday shopping season.  October Retail Sales data that showed a small +0.2% increase was near consensus.--

Housing Data

     September New Home Sales fell more than expected to 553K.  Both September Housing Starts 1.201M and Existing Home Sales 5.50M showed more weakness than had been expected.  --August New Home Sales at 629K matched consensus, but showed some weakness from downward revisions to previous months.  August Housing Starts at 1.282M were above consensus, but new permits of 1.229M were lower than expected.  August Existing Home Sales at 5.34M came in just below consensus.  July's -0.7% decline in July Existing Home Sales to 5.34M came in below consensus along with a -1.7% decline in New Home Sales to 627K.  July Housing Starts gained +0.9%, even though below expectations, had a good gain in single family housing permits.  June Existing Home Sales at 5.38M was at the low end of expectations, but prices remained strong.  June New Home Sales at 631K also were lower than consensus.  June Housing Starts at 1.173M fell below expectations.  May New Home Sales continued an uptrend to 689K, but May Existing Home Sales were weaker than expected falling -0.4% to 5.43M.  May Housing Starts of 1.35M were strong hitting the high-end of consensus.  May Existing Home Sales were flat at a below consensus 5.43M.  April New Home Sales of 662K supported the continuing upward annual rate, but Existing Home Sales at 5.46M were disappointing and well below consensus. April Housing Starts of 894K single family homes and +0.9% rise in new permits shows housing activity remaining solid.  5.6M Existing Home Sales for March and 694K New Home Sales beat consensus.  March Housing Starts showed a good 1.319M gain at the high end of consensus.  --February Existing Home Sales at 5.540M were up +3.0% beating consensus.  New Home Sales at 618K were near consensus and showed prices gain traction.  February Housing Starts at 1.236M was below the consensus forecast.  January new home sales came in below consensus at 593K, but the level of New Permits and Starts indicate the overall near-term positive trend will resume.  January Existing Home Sales fell -180K to 5.380M, which was below consensus due to increasing supply and lower prices.  January Housing Starts at 1.326M remained seasonally strong.  December Existing Home Sales were 5.57M and New Home Sales at 625K continue at a solid pace.  December Housing Starts for December were below consensus at 1.192M, but New Permits remained very strong at 1.302M.  November housing data showed Housing Starts at 1.297M, Existing Home Sales at 5.810M, and New Home Sales at 773K, which were all strong and well over consensus.  October's strong New Home Sales at 684K was well above consensus.  October Existing Home Sales report also came in above consensus at 5.39M.  October Housing Starts showed a strong above consensus increase to 1.29M.--  

Leading Indicators

    September Leading Indicators posted a solid +0.5% gain that point to more strong growth going into 2019.  --August Leading Indicators were up +0.4%, boosted by consumer expectations and a rising stock market, meeting forecasts for a solid gain.  July Leading Indicators rose +0.6% shows continuing strength that was at the high end of the consensus forecast.  June Leading Indicators showed a strong +0.5% above consensus increase.  May Leading Indicators report up +0.2% showed growth was not accelerating, but still at a good level.  April Leading Indicators report up +0.4% came in at the high end of expectations.  March Leading Indicators advanced a respectable +0.3%.  February Leading Indicators despite the recent stock market weakness rose +0.6% indicating good economic growth ahead for 2018.  January Leading Indicators rose +1.0% indicating that good economic growth will continue.  December Leading Indicators rose +0.6% signaling further economic growth ahead.  The November Leading Indicators release shows a reasonably healthy +0.4% rise.  October Leading Indicators, up +1.2% showed a strong above consensus increase.--       


October Producer Price inflation jumped +0.6% (+0.5% core) for October, which was well above the consensus forecast.  October Consumer Prices will be released this week on Wednesday.  September data for Producer Prices, up +0.2% and Consumer Prices, up +0.1% were benign showing little inflation.  --August inflation data showed a -0.1 decline for Producer Prices at the overall and "core" level, which excludes food and energy.  August Consumer Prices rose +0.2% overall and +0.1% at the "core" level.  Both measures are up near the Fed's 2% target for year-over-year inflation.  The August data showed signs of developing inflation pressure in employees wages.  July Personal Consumption Expense inflation increased +0.1% with "core" inflation rising +0.2%.  July Consumer Prices rose +0.2%, up +2.9% year-on-year.  July Producer Prices held steady at 0.0%.  The +0.3% rise in both "headline" and "core" June Producer Prices was at the high end of consensus raising questions whether some inflation pressure will pass through to future consumer costs.  June Consumer Prices were tame, matching the consensus call for a +0.1% rise.  "Core" prices were up +0.2%.  May inflation reports showed a moderate +0.2% increase in Consumer Prices, but also an above consensus +0.5% increase in Producer Prices that reflected large increases for steel and aluminum.  April Producer Prices up +0.1% showed little sign of inflation pressure and April Consumer Prices up +0.2% were also below consensus showing price increases remaining contained.  March Producer Price +0.3% "headline" and "core" inflation was higher than consensus, but the acceleration was modest.  March Consumer Prices fell -0.1% due mostly to lower gasoline prices, but the +0.2% "core" gain matched expectations.  February inflation for Consumer Prices were reported to have risen +0.2%, with core prices up a tame +1.8%.  Producer Prices also rose +0.2% at the overall and core levels.  January Consumer Prices showed a 0.5% increase with core price up +2.3%.  Year-over-year it rose 2.2%.  Producer Prices headline number rose +0.4%, with core prices also up +0.4%.  December inflation data showed December Producer Prices both headline and core declining -0.1% for a net year-over-year +2.6% change.  December Consumer Prices headline number rose +0.1% with core prices up +0.3%.  The year-over-year change was +2.1%.  November inflation data showed higher Producer Prices inflation up +0.4% with core prices rising +0.3%.  November Consumer Prices up +0.4% was offset by core prices showing a slight +0.1% gain.  October inflation data releases showed Producer Prices rising +0.4% at both the total and "core" levels and Consumer Prices rising +0.1% +0.2% for "core" prices.  This brings the Producer prices annual rate of increase up to the 2% level targeted by the Federal Reserve.  The annual rate of increase for Consumer Prices is now +1.8%.--

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