foxex: Market Calm

The Market Sum | Insight after the bell

By Gabe Alpert, Associate Editor

Friday's Headlines

1. U.S. markets were flat at the end of a shortened trading week

2. Michaels gets a new CEO

3. A new study on the 2018 tariffs is out

4. What to expect from the week ahead

Markets Closed

Dow
28,645.26 +0.08%

S&P
3,240.02 +0.00%

Nasdaq
9,006.62 -0.17%

VIX
13.43 +6.17%

Bitcoin
$7,281.93 +0.36%

US 10-Yr Yield
1.874 -1.63%

Year-to-Date

Dow
28,645.26 +22.80%

S&P
3,240.02 +29.25%

Nasdaq
9,006.62 +35.74%

Russell 2000
1,669.03 +23.76%

Crude Oil
$61.74 +28.72%

US 10-Yr Yield
1.8740 -30.23%

Markets Today

U.S. markets were calm today, with none of the three major U.S. indexes, the S&P 500, the Dow Jones Industrial Average, and Nasdaq, moving much. The FTSE in the U.K. was similarly quiet and the Nikkei in Japan moved a bit more, but only slightly, dropping by 0.36%. Overall, a quiet trading day to cap off a fairly quiet week, cut short by holidays.

Headlines

Arts and crafts retailer Michaels (MIK) hired Walmart executive Ashley Buchanan to be its president and CEO. Like many retailers, Michaels has been struggling with slowing sales, and Michaels tapped Buchanan due to her experience with e-commerce. Investors evidently approve of the choice, as Michaels' stock rose 34% today.
Japan's richest person, Tadashi Yanai, will resign from SoftBank's board this month after 18 years. The founder and CEO of UNIQLO's parent company, Fast Retailing, is one of three external members. He is reportedly one of the few board members who opposed SoftBank CEO Masayoshi Son's riskier moves in the past.
The labor market is showing more signs of tightening as average hourly earnings increased 3.1% in November for all workers, according to data from the Department of Labor. Data from the Atlanta Federal Reserve indicated that wages of people in the bottom 25% of earnings rose 4.5%, even more than the 2.9% of those in the top 25%, This shows that the market for low-wage jobs is tightening, not just that for high-paying jobs.
According to Mastercard SpendingPulse, holiday retail sales rose 3.4% this year with e-commerce growing 18.8% to make up nearly 15% of total holiday retail spending.

New Study on Tariff Effects

A new study from the Fed shows how trade policy can result in unexpected negative results. In their paper creatively titled, "Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector," Fed economists Aaron Flaaen and Justin Pierce analyzed the effect of tariffs in 2018.

Most notably, they found that manufacturing employment in industries affected by the tariffs were lowered, not raised, due to the increased price of inputs affected by tariffs, and retaliatory tariffs from other countries. To use a hypothetical example, while car tariffs might mean a car company won't have to compete with foreign cars as much, the parts it imports to make its cars will be more expensive, and it will have a harder time selling its call abroad due the resulting trade war. This analysis shows that the tariffs may have cost jobs in the industries they were trying to protect.

What to Expect in the Markets This Week

New Years is coming up, and that means more market closings, for a list of which markets are open and closed which day, take a look at the table below.

And here are the returns by asset class year to date

Here's a brief look at the week ahead.

Monday December 30

German Retail Sales (Nov.)
U.S. Preliminary Goods Trade Balance (Nov.)
U.S. Retail Inventories Ex. Autos (Nov.)
U.S. Chicago Purchasing Managers Index (PMI) (Dec.)
U.S. Pending Home Sales (Nov.)
China PMI (Dec.)

Tuesday December 31

U.S. Conference Board Consumer Confidence (Dec.)
Numerous Market Closures (see table above)

Wednesday January 1

Numerous Market Closures (See Table Above)
China Caixin Manufacturing PMI (Dec.)

Thursday January 2

Market Holiday in Japan
U.K. House Price Index (Dec.)
German Manufacturing PMI (Dec.)
French Manufacturing PMI (Dec.)
Eurozone Manufacturing PMI (Dec.)
U.K. Manufacturing PMI (Dec.)
U.S. Manufacturing PMI (Dec.)
U.S. FOMC Meeting Minutes

Friday January 3

Market Holiday in Japan
Germany Unemployment (Dec.)
French Preliminary Consumer Price Index (CPI)
German CPI (Dec.)
U.K. Construction PMI (Dec.)
U.S. Institute for Supply Management Manufacturing PMI (Dec.)

AB 5

Besides being the start of the new year, January 1 is the first day that California Assembly Bill 5 (AB5) goes into effect. The law would limit when an employer can classify someone as a contractor. In order to do so, and therefore not have to provide that person benefits, the company has to prove three things:

The worker is free to perform services without the control or direction of the company.
The worker is performing work tasks that are outside the usual course of the company's business activities.
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

While this applies to most employers in the state, "gig economy" companies such as Uber Technologies are likely to be among the most affected, due to their extensive reliance on contractors. Uber, along with Lyft, and Doordash pledged to spend $30 million each to support a ballot initiative exempting them from AB5. While it remains to be seen how widely these provisions will be interpreted, and how rigidly they will be enforced, this disruption in California's roughly $3 trillion economy, will likely have ripple effects throughout the U.S. employment market.

Purchasing Managers' Indexes Aplenty
Purchasing managers' indexes (PMI) are released for the U.S., China, the U.K., and Eurozone next week. These indexes are derived from survey responses given by company executives about several business metrics, such as inventory levels and new orders. As the U.S.'s two-front trade war with China and Europe has waxed and waned, keep an eye out for what effect the trade wars are having on manufacturing in the countries involved. Another thing to keep an eye on, with the U.K. election finished with a decisive result, look out for how manufacturers may be reacting to an increased chance of a hard Brexit.

More News:

The Santa Claus Rally

Markets Tight-Ranged Except for Silver and Gold

Transportation Stocks Poised to Head Higher in 2020

chart courtesy YCHARTS

It was an exceptionally light trading day today so there were no big gainers. The biggest gainer in the S&P 500 was communications and network services company CenturyLink, which rose a modest 2.3%.

Aerospace manufacturer TransDigm Group fell 5.6% today. American Airlines Group fell 4.2% today, and real estate investment trust Vornado Realty Trust dropped 2.9%.

Word of the Day

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.

Today in History

December 27, 2001

Today in 2001 President George W. Bush signed a proclamation granting "permanent normal trading relations," (PNTR) status to China. This followed China becoming a member of the World Trade Organization (WTO) in November, 2001. This meant that lowered tariffs put in place on a yearly, renewable basis in 1980 would become permanent. This had an enormous impact on both economies as trade between the U.S. and China exploded. The U.S. imported $100 billion in goods from China in 2000 and $540 billion in 2018. The U.S. trade in goods deficit went from $83 billion in 2000 to $420 billion in 2018. The size of the economic shock from this trade explosion has reverberated throughout the U.S. economy and society, exacerbating many of the societal concerns caused by ongoing de-industrialization in the U.S., and fueling a backlash against free trade under the Trump administration.

Sources: https://georgewbush-whitehouse.archives.gov/news/releases/2001/12/20011227-2.html
https://www.census.gov/foreign-trade/balance/c5700.html