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Comeback

At the risk of repeating something we’ve been saying all year, this is a resilient bull market. Indeed, very resilient. That the bull’s been trotting along generally steady over a decade now is not a legitimate “sell by” date. Bull markets don’t die of old age. I like a recent comment by Ryan Detrick, senior market strategist at LPL Financial, who says, “Bull markets do not die of old age. They die of excess — overspending, overleverage, overconfidence.” Doesn’t to seem to be much evidence of these “overs,” is there? And others note similar sentiments: bull markets don’t die of old age, but rather they’re killed by the Federal Reserve. Clearly, there was a “near miss” (as pilots say) last fall, when the Fed kept hiking rates—finally to beyond what was necessary as it turned out, and surprising mainly the policymakers. For more on this, see pages 3 and 6. After almost choking the rally last year, now the Fed is the market’s friend. Long may it last. This bull will die. They all do. It won’t be of old age, however. As long as inflation remains low and the economic backdrop fosters corporate EPS growth, I agree with my colleague Tom Lee, that the bull should make new highs in coming weeks and months. This past week the market action was a microcosm of 2019. In the early part of the week, the market tanked on some weak U.S. data and yet another negative trade and tariff tweet from President Donald Trump, only to perk up nicely not long after. In the first half of the week, the market dropped nearly 3% after President Donald Trump suggested a U.S.-China trade deal might have to wait until after the 2020 elections. That followed news that November’s ISM PMI registered 48.1%, down a bit from 48.3% in October and below expectations of 49.2%. But as Tom Lee points out on page 3, the ISM PMI diverges in crucial ways from the Markit PMI. Yet even before Friday’s strong jobs data, the market began to crawl back. There’s that resilience. And after data emerged Friday that showed employers added 266,000 jobs in November and unemployment matched a 50-year low of 3.5%, topping expectations, it was off to the races again for stocks. So the Standard & Poor’s 500 index finished around 3146, down smidge from the all-time high 3154. It is up over 25% this year. Given these ups and downs, what would have happened had you not paid any attention at all to the market gyrations last week? Well, with the SPX within a whisker of the all-time high set the day before Thanksgiving, sometimes it pays to ignore the noise. David Rosenberg at Gluskin Sheff estimates 95% of the return in 2019 has come from P/E expansion. Well, yeah, given SPX EPS growth is nil this year at about $163, up a tad from 2018. Next year, the consensus is for $172, or about 5.5% growth. However, if—as we’ve been saying—the 2020 economy will be stronger than 2019’s there could be upside to that EPS figure. And if you think this has been a particularly volatile market year, think again. According to DataTrek, as of Dec. 4, the S&P 500 index has risen or fallen by 1% or more on a total of 38 days so far this year. That compares to the annual average of 53 over the past 60 years. Volatility is therefore running below pace in 2019. Also according to DataTrek, years that have outsized returns along with an abnormally strong January—which describes 2019 to a T—are followed, on average, by years with a 10% rally and up 60% of the time. By the way, over the last 100 years, December has been the strongest month, with the Dow Jones Industrial Average up a mean 1.44% that month, with positive returns 68% of the years. One thing of which I’m fairly certain is that this December’s stock market activity will look nothing like that of 2018. Investors who do watch the weekly volatility should next week keep an eye on US-China trade talks. It will return to the forefront of market sentiment ahead of the Dec. 15 deadline for new tariffs on consumer goods to take effect. If the phase one deal isn’t signed, look for a minor sell off again. But as Tom Lee notes below, we think these are buying opportunities broadly speaking. Quote of the Week: According to Bloomberg News, owner Michael Bloomberg has spent $59 million on advertising since entering the race, relatively late in the political season. When he was asked why he had changed his mind about running for the presidency, after saying in September that he would not, Bloomberg said the Democratic field was weak. “I watched all the candidates,” he said. “And I just thought to myself, Donald Trump would eat them up.” Uh-huh. Questions? Contact Vito J. Racanelli at vito. racanelli@fsinsight. com or 212 293 7137. Or go to

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