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Earnings Reporting
The Market Bull 2018

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The Market Bull – January 14, 2019

The major averages closed with modest losses on little news today. With the government shutdown dragging on there seems little willingness to compromise and it will start to impact not only the economic data, but also, its delivery going forward. 4th quarter earnings reporting is underway, the trade war with China has had an effect, but it will be a few weeks yet before we can assess the extent of the damage on the domestic corporate side. That said growing evidence shows that the Chinese economy has suffered materially with imports falling sharply as the year came to a close. Exports however recorded a more than 10-year high surplus with the US of $323.32 billion in 2018.

One of the most vexing economic issues of the last 30 or so years has been the lack of real or inflation adjusted wage growth. In the last 3 years wage growth has picked up and now exceeds 3%, a respectable figure.

That said much of the wage gains in 2018 came from legislated increases to the minimum wage and not the generosity of employers, or a tight labor market dictating higher wages to slow employee turnover. A total of 18 states and 22 cites voted to increase their respective minimum wages in 2018. 2019 has an additional 19 states and 21 cities with planned legislated minimum wage increases as well so wage gains should be quite robust this year too. Again it is worth noting that these wages gains, as impressive as they are, are primarily driven by a political process and not the business cycle as one would expect given the official unemployment rate and constant jawboning from the mainstream media about how great the economy is. Still a win is a win and a number of large corporations have voluntarily increased their employees minimum wage of late such as Target, Amazon, Costco, Walmart and Disney to name a few. The legislative nature of theses gains is shown in the labor force participation rate of 63.1,

while this is a 5-year high it is still well below its pre-bust peak indicating that the labor market isn’t as strong as the headlines suggest. Along the way exposing another one of Trumps ridiculous follies, to wit. “There is little or no evidence that the Tax Cuts and Jobs Act of 2017 had much of an impact on wages – and certainly workers haven’t seen the absurd $4,000 per employee windfall President Donald Trump’s economic advisers and political allies made before the tax cut was passed by Congress.” Another very significant China trade war data point is the 73% collapse in Chinese foreign direct investment or FDI it hit a 6-year low of just 30-billion. Looking at the US directly FDI fell 83%, Canada dropped 80% and I would think this has had a lot to do with struggling real estate markets of late. The trade war story is far from over and I would expect considerably more collateral damage before it is finished.

Standard and Poors 500 Index closed at: 2,582.61 down 13.65
NASDAQ finished the day: 6,905.92 down 65.56
Gold ended trading at: $1,292.00 up $2.50


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