Markets continued to digest divergent economic and trade data, which is making it tough for investors to determine if a bottom is in place, or if there is more pain to come in 2019. Market futures plunged before the open on the first trading day of 2019 as manufacturing data out of China indicated the worst month for manufacturing in 19 months. The December data indicated China manufacturing actually contracted the last month of the year. This was followed by Redbook retail data in the U.S., which showed the strongest uptick in year-over-year spending in over 13 years. The weekly number for the week of December 29 showed a sizzling hot 9.3% increase in same store sales, far exceeding the 7.8% increase the prior week.

Add to that comments from President Trump that a deal could be done with China, combined with reported contradictory comments from his Trade Representative, Robert Lighthizer, that additional tariffs may be needed to bring China to the bargaining table. And, you had what has become the typical rollercoaster day with the markets plunging in the morning, only to recover to positive territory, and then finish the day nearly flat.

Earnings resume Thursday with numbers coming in from The Simply Good Foods Company (SMPL) and Landec Corporation (LNDC). Landec, a fresh foods focused company, recently acquired guacamole producer Yucatan Foods in early December. Analysts will be looking for an update on synergies with the new acquisition, and new earnings projections given a guacamole market in the U.S. growing at 20% per year. Simply Good Foods has been pouring money into building brand recognition recently. The stock was a winner for investors in 2018 rising from the mid-$14s to close the year around $19 per share.

It’s back to business as usual, apart from economic numbers not reported due to the partial government shutdown, on Thursday with the economic numbers coming fast and furious. Analysts will digest MBA mortgage applications data, the ISM Manufacturing Index, and a slew of jobs data. Set to be released is the Challenger Job-Cut Report, the ADP Employment Report, and jobless claims. The jobs numbers are expected to remain steady, with jobless claims holding at 217K from a prior 216K last week. Investors will be more focused on the drama playing out in Washington, as Democrats in the House are scheduled to present a budget which does not include funding for President Trump’s border wall.   

Friday brings employment situation data as well as PMI numbers for the services industry. The unemployment rate is expected to hold steady at 3.7% with non-farm payroll numbers increasing 180K in December. The PMI services number is expected to drop over a point from November levels to 53.4. December has seen drops in both new orders and output numbers.

Cal-Maine Foods (CALM) and Lamb Weston Holdings (LW) will take to the earnings stage the final day of the first week of January. Lamb Weston, producer of frozen potatoes and other vegetables for retail and restaurants, was a buoy in the investing storm for investors in 2018. The company’s shares rose from the $56 level to finish near $73 on the year. Cal-Maine, the country’s largest egg producer, has been hampered recently by rising feed costs and a consumer turning to cage-free or other specialty eggs. A recent acquisition of Featherland Egg Farms will be on tap for discussion with analysts on Friday.  

Markets ended 2018 with something of a whimper after all the volatility in the fourth quarter. While there were no extreme swings, it was still an up and down day for the averages which all managed to close in positive territory. The DJIA was up 1.15%, the S&P 500 climbed .85% and the Nasdaq finished the day up .77%. This placed all the averages down on the year, with the final numbers coming in at the DJIA down 5.63%, the S&P 500 off 6.24% and the Nasdaq wrapping up 2018 down 3.88%. It was an unusual year for the markets in many ways. But, one of the most unsettling for investors, was the fact that at the end of the third quarter the markets were handily in positive territory, only to finish negative for the year.

For the first time in history the S&P 500 finished the third quarter in positive territory and then ended down on the year. At the end of September, the DJIA was up 8%. The swiftness of the decline has been attributed to algorithmic and automated trading by many pundits. But, the genesis of the negative action is clearly attributable to an interview given by Federal Reserve Chairman Powell. In the interview, he noted interest rates were a “long way” from neutral, the Fed’s target rate. Following Chairman Powell’s declaration on October 3rd, markets turned negative and never could find solid footing, even with a few extreme rallies, not uncommon in a bear market.

The questions for investors now is, where are markets headed in 2019. Market analysts are all over the map, predicting large rallies in some camps, and urging continued, or additional, caution in others. Some are pointing to historical markers, there have only been four back-to-back down markets since 1929, and others are focused on valuations. Barring a further deterioration in earnings, many believe markets are slightly undervalued here and the selloff represents a buying opportunity headed into the new year.

Whichever camp you favor, the issues facing markets as we head into 2019 remain unchanged from those that brought the market to its knees in the fourth quarter. The Fed, though softening its stance slightly, is still predicting two rate increases in 2019, and perhaps more importantly seems bent on improving its balance sheet and moving full steam ahead on quantitative tightening (QT). Though there were positive tweets from President Trump on the trade situation with China over the weekend, most believe the trade war between the two countries will at best be resolved late in the first quarter of 2019, and at worst may linger on into the summer. And finally, global economies, namely China, are clearly slowing. The major question is whether QT by other global banks will bring about a global recession.    

No economic data nor earnings will be released on Tuesday as the markets take a break to celebrate the New Year holiday. No earnings are currently scheduled for Wednesday.

Economic data to be released Wednesday includes Redbook retail data and the PMI Manufacturing Index. The comparable store sales data for chain stores, discounters, and department stores is expected to show a 7.8% year-over-year increase. While other economic data, such as regional Fed manufacturing surveys and housing numbers, have pointed to a weakening economy, the retail numbers have been very strong this holiday season. The PMI Manufacturing Index is expected to show no changes from the earlier flash number and settle at 53.9 for December. This is a slight decrease from the November PMI of 55.3.

Markets were on track to finish higher Friday, when the rhetoric between the President and Democrats around the partial government shutdown heated up, with jabs being thrown by both parties. President Trump, in a tweet, threatened to close the border with Mexico, abandon the newly minted USMCA trade deal, and cut off aid to several Central American countries he has criticized for not stopping caravans of immigrants headed to the U.S. border. A spokesman for incoming House Speaker Nancy Pelosi returned fire saying the Democrats had offered solutions to the ongoing shutdown but would not fund the President’s “immoral, ineffective, and expensive wall.”  Markets were once again derailed by the headlines as the DJIA rally vanished and the index finished down .33%. The S&P was off .12%, and the Nasdaq bucked the trend to advance .08%. Most traders are ready to throw in the towel on 2018, as this December will likely go down as one of the worst in history for stock market returns.

Investors will be watching the Dallas Fed Manufacturing Survey closely Monday after a major drop in the Richmond Fed Manufacturing Index on Wednesday. The fall in the Richmond numbers was very unexpected, and caught analysts by surprise. The Dallas Fed numbers have been on the decline for several months now. Tuesday markets will be closed for the New Year holiday.

Redbook retail data and the PMI Manufacturing Index will be released Wednesday. The index tracks private sector output, new orders, and inventory levels to give investors an idea of how manufacturing industries are performing. Analysts will be parsing the data to determine if it ties with the Richmond and Dallas Fed releases.

The first earnings releases of 2019 begin Thursday when Unifirst Corp. (UNF) and The Simply Good Foods Company (SMPL) report. Simply Good Foods has recently shifted its marketing and branding message for its Atkins line from a diet product to a wellness product. The company has ramped marketing spend to get the word out, which has hampered earnings. RPM International (RPM), Lamb Weston Holdings (LW) and Cal-Maine Foods (CALM) all report earnings Friday.

Thursday, will see the release of motor vehicle sales and MBA mortgage applications. Mortgage applications fell sharply last week with the purchase index down 7%. The Challenger job cut report, ADP employment report, and jobless claims will also be released on Thursday. Jobs have remained a bright spot to this point in the economic cycle, and investors are counting on good numbers to kick off 2019. The ISM manufacturing index and construction spending numbers are slated to be released at 10 am Thursday.

The first Friday of 2019 will bring out Fed Chairman Jerome Powell to participate in a panel discussion at the American Economic Association in Atlanta, Georgia. Markets have been shaken recently by the Fed’s attempts to communicate policy, and investors will likely be hanging on Chairman Powell’s every word. Economic data released Friday includes the employment situation report and PMI services numbers.

Following another large drop on Monday, and after being closed for the Christmas holiday Tuesday, markets staged a massive rebound Wednesday. The DJIA put up its largest single-day point gain in history, gaining 1,086 points, or 4.98%. The Nasdaq, which is down the most of the major averages this quarter, posted a 5.84% gain. And, the S&P 500 stormed to a 4.96% one day advance. Volatility is often high in the final week of the year, but this week has mirrored the final quarter of the year only with amplified ups and downs. Investors are struggling with conflicting economic news, as housing numbers and the recent Richmond Fed manufacturing data looked horrific, but retail sales are setting records. At the same time, the Federal Reserve is trying to get back to a “normal” stance on interest rates, and political tensions, both domestic and international, seem to whipsaw markets daily with headlines of government shutdowns, slowing global economic growth and trade tariffs. Even attempts to reassure the markets, such as Treasury Secretary Mnuchin’s calls to major banks on Monday to ensure “ample liquidity is available,” raise new concerns around issues that haven’t been on analyst’s radar to this point.

Richmond Fed manufacturing data released Wednesday showed unexpectedly sharp decreases in several key areas. Analyst had predicted the index would come in at 14, unchanged from November, but the index fell 22 points to -8. Both shipments and new orders fell precipitously to levels not seen since 2009. Capacity utilization numbers also dropped 25 points to -16. Conversely, Redbook retail data showed some of the strongest retail growth in almost 13 years. The weekly growth jumped .7%, coming in at a red hot 7.8% year-over-year increase in same store sales. Amazon (AMZN) reported record sales as holiday shopping wound down.

Thursday, investors will pour through weekly jobless claims, the FHFA house price index, and new home sales. The consensus view has new home sales increasing in November to 560K from October’s 544K report. The house price index, which fell sharply in March, and then remained tepid for the rest of the year, is expected to increase just .2% month-over-month. Consumer confidence numbers will also be released Thursday. The number is expected to drop slightly to 134 from near all-time highs of 144.7. It would not be surprising, given the historic declines in the final quarter of the year, to see the number come in below consensus.

International trade in goods, retail and wholesale inventories, Chicago PMI and pending home sales data will all be released Friday. Analysts will be paying close attention to November export numbers, which dropped .6% in October. Advanced retail inventory numbers are expected to rise .9% for November. This early number is the precursor to final numbers which will be released in a few weeks. The EIA Petroleum Status Report will also be released Friday as well. Given the steep declines in oil prices the past few months, analysts are watching closely to determine where the bottom may be in oil. Crude inventories dipped slightly last week, but gasoline supply jumped upward by 1.8 million barrels.

There are no major earnings reports on tap this week. Earnings season will pick back up after the new year arrives early next week.    

Markets continued their downward spiral as a government shutdown is looming late Friday night. With no good news in the headlines, and markets still digesting the latest Fed move, the Nasdaq was the first to succumb to selling pressure. The DJIA and S&P 500 followed the tech index down in the afternoon. December, usually one of the better months for the market, has been brutal for all three major indices. The DJIA suffered its worst one week loss in 10 years, finishing down over 400 points and 1.81% on Friday. The S&P 500 was down 2.06. The Nasdaq, which has taken the brunt of the selling and is now in bear territory, down over 20% from its highs, closed down 2.99% and over 8% on the year, to mark the winter solstice.

It’s difficult to see the light at the end of the tunnel as investors head into the final full week of 2018. With the U.S. Justice Department announcing actions against Chinese nationals earlier in the week, trade issues between the two countries appear no closer to resolution. Chairman Powell appeared to pay little attention to recent market action in his statement earlier in the week. And a showdown in Washington may have the government partially shuttered by the weekend. With the mountain of negativity weighing heavy on the markets overall, it appears clear this is a stock picker’s market as we head into 2019.    

Monday analysts will examine the Chicago Fed National Activity Index. The Index is comprised of 85 different national economic indicators and has been trending higher since late 2016. The Index is expected to come in at .24, below the three month average of .31. No economic numbers will be released, and financial markets are closed, on the Christmas holiday Tuesday.

No major earnings announcements are scheduled for next week, with most Wall Street traders taking the usual week off between the Christmas holiday and New Years day.

Wednesday Redbook retail data, as well as the Corelogic Case-Shiller Home Price Index numbers will be released. The single-family home index is expected to show a price increase of .3% month-over-month and 5.1% year-over-year. The index has been trending lower since May. Also released Wednesday is the Richmond Fed Manufacturing Index and the State Street Investor Confidence Index. The Investor Confidence Index began trending lower in April and broke through levels not seen since 2016 in September. The index is based on the amount of equities investors hold in their accounts, with more equity holdings equaling a higher index reading. The index is broad based and measures the level of equity holdings in 45 countries. Thursday we’ll examine jobless claims, FHFA home prices, new home sales, and consumer confidence. On the final Friday of December, international trade, retail inventories, wholesale inventories, Chicago PMI, and pending home sales numbers will all be released. Pending home sales dropped 2.6% month-over-month in the October release, and with the Fed continuing to hike little upside is expected for November.

Market participants expecting a kinder, gentler Fed were sorely disappointed Wednesday. After the Fed hiked rates .25%, Chairman Powell indicated the Fed sees a strong economy, strong hiring, and still sees two interest rate hikes in 2019. Though expected, many analysts and market pundits had encouraged the Fed not to raise rates this week. And, to signal there would be no more rate hikes in 2019, at least until it became clearer how the economy was performing. Investors assumed the Fed had received the message Wednesday as the DJIA was up close to 400 points when the 2pm announcement was made. With the S&P 500 and Nasdaq both showing similar percentage gains, markets quickly sold off to flat before a brief pause, and then went into another nosedive. The DJIA finished off 1.49%, sending it into negative territory for the year. The Nasdaq closed off 2.17%, now down 3.67% in 2018. The S&P 500 clocked in down 1.54%, and is now off just over 6% on the year. The combination of tax loss selling, and most traders wrapping up their books this week, will likely lead to a continued volatile close to 2018.

Nike (NKE), Walgreens Boots Alliance (WBA) and Carnival Corp. (CCL) report earnings on Thursday. Nike fell with the rest of the market Wednesday, but is still up slightly on the year. The company is expected to post good numbers Thursday, as analysts expect positive momentum in sales and margins in the quarter. But, one question mark that may tarnish expectations is what impact Chinese tariffs had on the sports apparel company. The stock of Walgreens has been hit especially hard in the past few weeks. Investors are concerned Amazon’s (AMZN) entry into the pharmacy business could negatively impact earnings in the sector. The company would be well served to introduce some contingency plans to analysts on the earnings call as to how it would compete with the largest online retailer in the U.S.

Thursday’s economic calendar includes jobless claims, the Philadelphia Fed business outlook, and leading indicators. Jobless claims are expected to nudge higher this week after falling unexpectedly to an historic low of 206k last week. Analysts are also expecting a bounce back in the Philly Fed numbers to 16.9 from an unexpected decline to 12.9 in November. The Fed balance sheet, which Chairman Powell indicated will continue to be used for quantitative tightening, will be released after the close Thursday. Friday, the winter solstice, is a quadruple witching expiration. Index futures, index options, stock options, and single stock futures all expire, usually resulting in increased volatility in the market. Durable goods, GDP, and corporate profits will all be released before the market opens Friday. Personal income and outlays, consumer sentiment, and the Kansas City Fed Manufacturing numbers will also be released Friday morning. Both GDP and consumer spending are expected to maintain their current momentum, and come in at 3.5% and 3.6% respectively. After tax corporate profits are projected to average 5.9% on a year-over-year basis.

Carmax (KMX) wraps up the final week before the Christmas holiday when it reports earnings on Friday. Although the stock traded above $80 in 2018, it is now almost back to its lows for the year set in April, trading just over $57. Earnings for the quarter are expected to come in at $1.01 per share.  

Markets continued Friday’s downward trajectory Monday on fears of an interest rate hike on Wednesday and slowing growth in the overall economy. The Empire State Manufacturing Survey, projected to come in at 21, already down 2.3 points from November’s level, was a much worse 10.9 when it was released Monday Morning. The number had not been this low since mid-2017. The Housing Market Index, which had been expected to rise to 61 from November’s 60, also missed badly coming in at 56. It was amid this backdrop of softening numbers, both in the U.S. and globally, that money managers and market veterans began calling more loudly for a halt to the Fed’s interest rate increase policy. Chairman Powell has been backed into something of a corner after all but pre-announcing the December rate increase in the Fed’s policy statement. Fearing the Chairman has no choice but to implement the rate increase, markets fell across the board. The DJIA was down over 500 points once again, closing off 2.11%. The S&P broke through support levels around 2,600, hitting new lows for 2018, and finishing down 2.08% for the day. And, the Nasdaq, which was above 8,000 in September, closed at 6,753, off 2.27%.   

Fedex (FDX) and Micron Technology (MU) will headline earnings Tuesday. Fedex raised a red flag for analysts a few weeks ago when it decided to replace David Cunningham, a 36 year veteran of the company and head of the Fedex Express business, right before the holiday rush. With approximately 60% of the company’s revenue coming from the Express business, analysts are wary that the unit may be in trouble given the removal of its leader with no explanation given. With earnings falling, investors are looking for some insight into the current tech cycle when Micron reports on Tuesday. The stock traded up to $64 earlier in the year before falling back to earth and its current $33 level. Analysts are expecting 18% year-over-year growth and EPS of $2.94.

Housing starts and Redbook retail numbers will be released Tuesday morning. November housing starts are expected to fall to 1.221 million from 1.228 million in October. Given the miss on homebuilder sentiment, it would not be surprising if the expected housing starts number misses estimates as well. Retail sales numbers are projected to rise 6.6% year-over-year. Tuesday also marks the beginning of the Federal Open Market Committee meeting. While mortgage application and existing home sales numbers are slated for release Wednesday, the day’s economic data will be overshadowed by the release of the Fed’s decision on interest rates at 2pm. While there is a rising chorus railing against the December rate rise, it is still expected that the Fed will increase interest rates by .25% when it announces its decision Wednesday afternoon.

After breaking support at the $42.50 level in late November, General Mills (GIS) has been in a steady decline falling through $37 on Monday. Investors will be laser focused on margins when the company reports earnings on Wednesday. Rising input costs have made profitability challenging for the entire branded consumer food sector. Also reporting Wednesday is Paychex (PAYX). The recent announcement that the company will be acquiring Oasis Outsourcing Acquisition Corp. will drive a portion of the earnings call. Paychex paid $1.2 billion cash for the company and cited potential synergies in both revenue and cost savings. Analysts will be looking for management to flesh out the expected benefits from the merger.

Economic data out of China, indicating the country’s economy may be slowing, hit global markets hard on Friday. Industrial output grew by only 5.4% in the quarter, a growth rate last seen in the Chinese economy in 2016. The Chinese statistics bureau reporting the data said, the impact of tariffs in the trade war with the U.S have not yet been felt and are not reflected in the numbers. This may be the case, or it may be a negotiating tool for ongoing trade talks. Either way, markets again traded down on the headline data putting the S&P 500 back into correction territory, down over 10% from its highs. The S&P finished off 1.91%, the DJIA was down 2.02%, and the Nasdaq fell 2.26%. Offering no solace, Goldman Sachs economists stated they belief there is a good chance no trade deal is reached before the 90-day freeze on U.S. tariffs is removed in March. For its part, China has agreed to reduce tariffs on automobiles from the U.S. from the current 40% to 15%. Adding to the market damage, a report out of Reuters that Johnson & Johnson (JNJ) knew for over 40 years that its baby powder contained asbestos sent the stock reeling. Johnson & Johnson strongly denied the claims, but that did little to help investors who had flocked to the stock in recent months as a safe haven.

Tech behemoth Oracle (ORCL) and Red Hat (RHT) are scheduled to report earnings Monday. Analysts are expecting Oracle to report $.78 per share or 11.4% year-over-year earnings growth. The stock has traded flat for most of 2018, and investors don’t expect a big move from the company post-earnings given the recent market pressure on tech stocks. Red Hat is expected to show an earnings increase of 10% on revenue of $823 million.

Monday’s economic data will include the New York manufacturing survey and the housing market index. The prior reading on the housing index was 60. A continued deterioration in housing may spike the number lower, another potential negative for a shaky market. Tuesday analysts will examine Redbook retail data as we enter the final week before the Christmas holiday. Tuesday also marks the beginning of an FOMC meeting, at which most traders believe the Fed will raise rates by one-quarter percentage point. MBA mortgage applications and existing home sales data will be released Wednesday morning. The year-over-year change in home sales released in October showed a decline of 5.1%, putting the damage rising rates have had on housing on full display. Wednesday afternoon will bring the release of the Fed statement on interest rates and, the likely rate increase. The Fed announcement will be followed by a press conference by Chairman Powell at 2:30. Jobless claims, the Philadelphia Fed business outlook, leading indicators, and the EIA nat gas numbers will all be released on Thursday. Friday is a quadruple witching, which usually brings added volatility to the market. Economic data published on Friday includes durable goods numbers, GDP, corporate profits, personal income and outlays, consumer sentiment, and the Kansas City Fed manufacturing index.

Tuesday, investors will examine earnings from FedEx (FED) and Micron Technology (MU). The FedEx numbers are especially interesting to investors as they will serve as a pulse check on holiday spending. Paychex (PAYX) and General Mills will report quarterly earnings on Wednesday. Nike (NKE) and Walgreens Boots Alliance (WBA) are marked on the earnings calendar as reporting Thursday. Morgan Stanley recently came out with a note calling the sports company undervalued here and suggested buying Nike ahead of earnings. CarMax (KMX) is scheduled to close out the third week of December with earnings on Friday.

Markets continued a trend of sell the rallies today, even though the three major indexes finished in the black. News that the U.S. and China were making progress on tariffs, and that President Trump was willing to consider intervention in the detention of the Chinese CFO of Huawei, sent markets soaring after the open. The rally on headline trade news was once again sold as traders turned negative in the afternoon, leaving the DJIA up .64%, the S&P 500 clinging to a gain of .54%, and the Nasdaq up .95%. The tech heavy Nasdaq had been up as much as 2.35% earlier in the day. Investors are running out of time for any meaningful rally in December, and face the prospect of another Fed rate hike next week. Continued unsettling trade news, rate hike fears, a crumbling housing market, and general international unrest, both with BREXIT and riots in Paris, have kept the market on an uneven kilter as 2018 is drawing to an end. Investors can likely expect more up and down trading until some of these major issues are resolved.

Tech earnings will be front-and-center Thursday when Adobe (ADBE) and Ciena Corp. (CIEN) report. Adobe will look to placate investors who have begun to rely on the Saas company to produce ever increasing earnings. Last quarter the company hit another earnings record, increasing earnings 24%, beating both company and analyst projections. Expectations for Ciena are a little more down to earth, with an expected 4.8% year-over-year earnings increase projected. The stock has performed well in 2018, and will look to assure investors who have driven the stock to a 50% gain thus far. Also reporting Thursday is warehouse retailer Costco (COST). Reporting 10% comparable store sales for November late last week, investors are expecting another great number from the membership store as we head into year end.  

Thursday analysts will review weekly jobless claims, import and export prices and the EIA nat gas report. The recent uptick in jobless claims is expected to level off, with claims projected at 228K, down slightly from last week’s 231K. Thursday afternoon the Treasury budget and the Fed balance sheet numbers will be released. While it usually attracts little attention, the Treasury budget may garner mention this week with the possible partial shutdown of the U.S. Government looming in a few weeks. The Fed balance sheet has been in focus lately as the Fed is using a reduction in the balance sheet to tighten monetary policy. The balance sheet has shrunk from a high of $4.5 trillion to just over $4 trillion currently. The Fed shrinks the balance sheet by decreasing the amount of reinvestment it performs from maturing securities. Another $11 billion is expected to be removed from the balance sheet this week.

Retail sales and industrial production numbers will be released Friday. Industrial production, which rose only .1% in October, is expected to rebound slightly rising .3%. Also released Friday will be the PMI composite flash reading along with the Baker-Hughes rig count numbers and business inventories.

Indian multinational ICICI Bank (IBN) is projected to report earnings on Friday. With a $62 billion market cap, the bank has traded relatively flat in 2018. Earnings are expected to come in at $.05 per share. Analysts are also expecting numbers from Telecom Italia (TI) to close out the week. The NYSE traded ADR of the Italian communications company has fallen on hard times this year. The stock is down 26% so far in 2018.