Fed Fun

Spring has sprung, at least officially, but domestic stocks declined last week after a sell-off on Friday, the worst day in the market since January 3, took the S&P 500 down from five-month highs reached the day before. A plunge in longer-term interest rates – a rally in bond prices – seemed to be the primary catalyst. This action took a heavy toll on financial shares by threatening lower bank lending margins. Conversely, the prospect of lower rates helped the real estate sector, which was the best performing sector within the S&P. Technology and other growth-oriented shares also continued to outperform value stocks, which are typically more sensitive to economic conditions.

U.S. monetary policy and deepening concerns about the global economy appeared to dominate market sentiment before Friday. Traders focused much of their attention on the Federal Reserve’s policy meeting on Wednesday. As was widely expected, the Fed kept interest rates unchanged. Markets are now pricing in a roughly one-in-three chance of a rate cut in 2019.

At his post-meeting press conference, Fed Chair Jerome Powell acknowledged that growth in U.S. consumer and business spending had slowed in recent months and pointed to a more pronounced slowdown in European economies. In advance of the Fed’s statement on Wednesday, sentiment seemed to be dampened by profit warnings from several companies closely tied to swings in global demand, including BMW, FedEx, and UBS.

Bad news on Friday morning about the German manufacturing sector deepened these concerns and seemed to spark the day’s sell-off. Traders also seemed concerned by drops in IHS Markit’s gauges of both service and manufacturing activity in the U.S. Earlier in the week, the Commerce Department reported that factory orders had risen only slightly in January, while shipments had declined for the fourth consecutive month. A gauge of manufacturing activity in the mid-Atlantic region indicated healthy expansion and surprised on the upside, however.

As noted above, the generally downbeat tone of global economic data and the dovish signals from Fed officials sent longer-term U.S. Treasury yields down sharply. The yield on the benchmark 10-year U.S. Treasury note approached 2.4 percent in trading Friday, its lowest level since December 2017, and closed the week at 2.44 percent. November saw a seven-year high in 10-year yield of 3.232.

The rally in longer-term rates caused the yield on the 10-year note to fall below the yield on the three-month U.S. Treasury bill, resulting in an inversion of the yield curve. Such inversions have reliably signaled an oncoming recession in past decades, although some think that protective measures by central banks in recent years to hold down longer-term interest rates may be making the signal less reliable.

Despite the looming Brexit deadline, the STOXX Europe 600 was little changed through the first four days of the week before Friday’s manufacturing data sent stocks lower. IHS Markit’s gauge of purchasing manager’s index (preliminary) for the eurozone showed a below forecast reading. Germany’s manufacturing purchasing manager’s index seemed to be of particular concern, falling to a six-year low.

In Asia, mainland Chinese stock markets rose for the second straight week as domestic investors there stayed confident that the government would continue to step up easing measures to counter China’s slowing economy. For the week, the Shanghai Composite rose 2.72 percent and the large-cap CSI 300, China’s blue-chip benchmark, added 2.37 percent. Japanese stocks were also higher last week, although more modestly. The Nikkei 225 gained 0.8 percent for the week.

From the headlines:

• Federal Reserve Chairman Jerome Powell said Wednesday that it “may be some time” before the central bank needs to adjust its monetary policy, signaling that the central bank will not raise interest rates any time this year, giving the market what it wanted, for better or worse. The comments came as he unveiled another startlingly dovish outlook that saw projections for future interest-rate increases slashed from two to zero along with an announcement that quantitative tightening — the act of shrinking the Fed’s huge pile of balance sheet assets — would end even earlier than thought, in September. Mr. Powell was careful not to speak ill of the U.S. economy, but one has to wonder if the Fed is concerned about the data more and market reaction less, especially given that stocks closed down Wednesday after the announcement. For example, note this week’s first Chart of the Week.
• On Friday evening, after the market’s close, Special Counsel Robert Mueller delivered a report to attorney general William Barr detailing his nearly two-year investigation into Russian interference in the 2016 election. The comprehensive report, still confidential as of press time, marks the end of Mueller’s probe but sets the stage for big public controversies to come. The next steps are up to Trump’s attorney general, to Congress and, most likely, the federal courts.
• Also on Friday, President Trump tweeted that he would be blocking “additional large scale Sanctions” on North Korea, which he said had been announced earlier in the day by the Treasury Department.
• A newly inverted yield curve – on Friday, the bond priced the interest rate on three-month U.S. Treasury bills higher than the interest rate on 10-year U.S. Treasury notes – suggests that the Fed was right to pause its rate-rising regimen. Such an inversion has been a sure-fire harbinger of the past seven recessions.
• U.S. trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin plan to fly to Beijing this week to meet with Chinese Vice Premier Liu He, who is expected to lead a Chinese delegation to Washington to continue talks next week. The deal they are working toward would include substantial increases in U.S. exports to China, and Chinese pledges to better protect intellectual property, end pressure on U.S. companies to transfer technology to their Chinese partners and reduce subsidies for Chinese companies. But other issues big remain. President Trump said last week that he plans to keep tariffs in place on Chinese goods for a “substantial period of time,” possibly even after a trade deal is forged to ensure Beijing’s compliance. China’s spending spree during the global financial crisis helped pull the world economy out of recession. However, Beijing’s latest stimulus might not pack the same punch.
• Of the 11,021 ratings on stocks in the S&P 500 ahead of the upcoming first-quarter earnings season, 54 percent are buy ratings, 40 percent are hold ratings and 6 percent are sell ratings, according to FactSet. Of course, analyst’s firm don’t generally want their clients to sell stocks. The energy (67%), health-care (60%) and communication-services (59%) sectors have the highest percentage of buy ratings, the data showed. Meanwhile, the consumer-staples sector has the highest percentage of hold ratings (50%) and sell ratings (11%).
• The Trump administration pushed a $1.5 trillion tax cut through Congress in 2017 on the promise that it would spark sustained economic growth. While the tax cuts did goose the economy in the short term, administration officials now concede they will not deliver the three percent annual growth the president promised over the long term.
• When GDP became the dominant measure of economies in the 1940s, wide adoption of the internet was still a half-century away. Today, the internet is responsible for a major chunk of economic activity, but GDP misses much of it. This has widened the gap between the closely watched metric and actual economic health.
• U.S. manufacturing output declined for the second consecutive month in February, a fresh sign that a long-predicted slowdown is hitting the U.S. economy. The question now is how sharp and long-lasting the slowdown will be. Americans’ spending on services slowed sharply in the fourth quarter, a development that will likely force downward revisions to official estimates of fourth-quarter gross domestic product.
• Bloomberg’s PMI tracker, which follows every region in the world, shows data have slowly moved two levels down from “improving” for much of 2018 to “neutral” at the start of 2019. U.S. PMI fell to its lowest in 18 months. Manufacturing output fell for the second consecutive month in February, the first back-to-back decline since 2017.
• Baby boomers may be more prepared for dying than living.
• 46 percent of Americans say they don’t expect to be financially comfortable in retirement.
• Median compensation for 132 top CEOs exceeded $1 million a month in 2018: $12.4 million a year, up from $11.7 million in 2017.
• Bridgewater, Ray Dalio’s mammoth hedge fund, is betting that debt-stricken Brazil’s growth will be the “strongest in the world” in 2020.
• Is the SEC using Regulation Best Interest as “a marketing slogan”?
• With insurers likely to add social media to the data they review before issuing policies, it might be wise to post pictures from the gym, but not happy hour.
• BlackRock is cutting the price big clients pay to invest in its largest equity index fund, a bid by the giant money manager to close the gap with cheaper rivals.
• Flows into multi-factor U.S. equity ETFs have gone gangbusters so far in 2019.
• Japan’s government downgraded its view of the economy for the first time in three years, blaming the U.S. trade war for weak exports and industrial output.
• UK Prime Minister Theresa May got her requested Brexit delay, sort of. If the British Parliament approves a withdrawal agreement this week, the EU will extend the deadline to May 22, giving both sides time to approve legislation to implement the deal. But if Parliament again votes no, the UK will have only until April 12 to indicate how it wants to take the Brexit process forward, meaning a disorderly crash-out is still possible.
• The Economic Report of the President, prepared by the Council of Economic Advisers, and which runs 705 pages and features chapters on “expanding labor force opportunities” and “ensuring a balanced financial regulatory landscape,” claims to be written by Batman.
• A Morningstar survey explored what attributes investors value in an advisor. Of course, investors often want the wrong things.
• Cyclone Idai swept through southeast Africa last week, killing thousands and leaving entire towns and farmlands underwater. The aftermath is only just starting to become clear, assisted by drones and satellite imagery.
• As polarized as the country is, Americans agree on a variety of things. Most fundamentally, there is agreement that the future is grim. Across the board, there is further agreement that the standard of living will fall by 2050, health care will be less affordable, a terrorist attack as bad or worse than 9.11 will happen, public education will deteriorate, robots and computers will take many U.S. jobs, people will be forced to work into their 70s, and politicians won’t be able to handle it.

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Ten Years On

March 6, 2009 was a “jobs Friday,” and that report was a disaster. The U.S. economy lost a staggering 651,000 jobs in February 2009. The details were even worse. The number for January was revised to a loss of 655,000 jobs, and the loss for December was revised to 681,000. That was the single-worst month for jobs in 60 years. There was bad news everywhere. The unemployment rate came in at 8.1 percent, which was a 25-year high.

During the day on March 6, the S&P 500 fell to a devilish low of 666.79. The Dow got down to 6,469.95. Adjusted for inflation, that’s unchanged from the Dow’s peak 43 years before: essentially forty-three years of no gains.

On Monday, March 9, 2009, ten years ago yesterday, the S&P 500 closed at 676.53. Since then, the market has more than quadrupled. Including dividends, it’s up fivefold: an amazing 17.37 percent annualized. Oh the power of compound interest!

The best time to invest in a generation was an incredibly hard time to invest. The news was horrible and stocks were on sale, but the “experts” were calling for things to get much, much worse.

For example, Nouriel Roubini, who had earned the nickname “Dr. Doom,” said the market had even further to fall. The Wall Street Journal ran an editorial entitled “Obama’s Radicalism is Killing the Dow,” by a former chairman of the President’s Council of Economic Advisors.

Every light was flashing red. The VIX was at 50! On that Friday, the S&P 500 was able to eek out a tiny gain, but the market sunk again in Monday, closing at 676.53, a 12-year low. As of today, that stands as the lowest close this century.

Even though everything looked about as bad as possible, within a month, the S&P 500 had soared 25 percent. The index gained 70 percent in less than a year. By the bull’s first birthday, Dr. Robert Shiller, a Nobel Prize-winning economist, said the market was due for a pullback. That idea has been repeated many, many times since.

On March 6, 2000, 19 years ago last week, then Fed Chairman Alan Greenspan, on his 74th birthday, seemed to endorse the stratospheric prices of tech stocks at a Boston College economic conference, following years of warning that stock prices were too high. Just four days later, 19 years ago today, the Nasdaq peaked and began tumbling in what then was the worst market crash since 1929.

If you think you (or anyone) can expect to call market tops and bottoms, think again.

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Domestic stocks performed poorly last week, with the major indexes seeing declines on each of the five trading days and generally suffering their first down week of the year. The smaller-cap indexes, which are typically more volatile, fared worst. The S&P 500 slipped below its 200-day moving average, a threshold that many tactical managers watch closely.

Within the S&P 500, the typically defensive and interest rate-sensitive real estate and utilities sectors fared best as longer-term bond yields decreased to their lowest levels since the start of the year. Energy stocks were among the worst performers as oil prices fell, and industrials shares suffered from deepening concerns over a global slowdown. Health care shares also performed poorly, weighed down in part by a decline in pharmaceutical giant Pfizer. Transportation stocks, often considered a barometer of global economic activity, were also notably weak. The Dow Jones Transportation Average recorded its longest stretch of daily declines in nearly 50 years, according to Bloomberg.

Indeed, a variety of troublesome signs about the health of the global economy weighed on sentiment throughout last week. The most pronounced indicator may have been the decision by the European Central Bank on Thursday to inject further liquidity into the eurozone’s banking system to spur loan growth and economic activity. Traders also seemed unsettled by China’s announcement of new fiscal stimulus directed at its manufacturing sector.

Hopes that a U.S.-China trade deal would soon be announced seemed to fade as last week progressed, further weighing on stocks. Stock futures got a boost on Monday morning from a report in The Wall Street Journal that the two sides were nearing a deal that might be finalized at a summit between the country’s two leaders as early as March 27. The report also quoted insiders cautioning that “hurdles remain,” however, and no further reports of substantive progress emerged later in the week.

The week’s domestic economic data were generally upbeat, suggesting that the global slowdown had yet to cause significant damage to the U.S. economy. Gauges of both service and manufacturing activity in February indicated solid expansion, and December new home sales rose in defiance of expectations for a sharp drop.

The unemployment rate declined in February, but hiring growth slowed significantly, a sign employers could be struggling to find workers as the labor market tightens. U.S. nonfarm payrolls rose a seasonally adjusted 20,000 in February, the Labor Department reported Friday. The unemployment rate, a seasonally adjusted 3.8 percent, was down from 4.0 percent a month earlier. Economists surveyed by The Wall Street Journal had expected 180,000 new jobs and a 3.9 percent unemployment rate. Wages rose 3.4 percent from the prior year, the best pace in a decade. The consensus view seems to be that the economy is slowing from last year’s robust 3 percent pace, but the job market gives no reason to think it’s in trouble.

The yield on the benchmark 10-year Treasury note did not react decisively to the payrolls report but decreased substantially throughout the week in response to the ECB decision and continued dovish remarks from Fed officials. On Friday morning, the benchmark 10-year U.S. Treasury note yield touched its lowest point since January 4 and closed the week at 2.62 percent.

Across the pond, the pan-European STOXX Europe 600 fell after the ECB news. The move seemed to highlight the negative impact that trade tensions and geopolitical concerns have been having on growth in the eurozone and around the globe.

In Asia, mainland Chinese stocks ended a roller-coaster week lower, as poor February trade data and bearish broker calls on two high-flying financial stocks there led to profit-taking just days after the indexes there entered a bull market. For the week, the Shanghai Composite shed 0.8 percent, while the large-cap CSI 300, China’s blue-chip index, fell 2.5 percent. In Japan, the Nikkei 225 fell -2.7 percent for the week.

Other significant news and notes follow:

• The federal budget deficit ballooned rapidly in the first four months of the fiscal year amid falling tax revenue and higher spending, the Treasury Department announced Tuesday. The deficit grew 77 percent in the first four months of fiscal year 2019 compared with the same period one year earlier, while the total deficit for the four month period was $310 billion, up from $176 billion for the same period one year earlier.
• The OECD cut its global growth forecasts again in its new semi-annual report, citing “policy uncertainty, ongoing trade tensions, and a further erosion of business and consumer confidence.”
• The U.S. and China have yet to set a date for a summit to resolve their trade dispute as neither side believes an agreement is imminent. China lowered its economic growth target. The annual gross domestic product is expected to advance between 6 and 6.5 percent in 2019. Meanwhile, the government has found $1 trillion in off-balance-sheet stimulus. Is Chinese President Xi Jinping’s vision of an expansive Chinese state working? Chinese exports plunged 21 percent in February, compared with a year earlier. That’s the weakest performance in three years, and it was a lot worse than economists had predicted.
• Pure dumb luck plays more of a role in money management than many want to admit.
• The MMT wars have begun. According to Harvard’s Lawrence Summers, former Treasury Secretary, Modern Monetary Theory is “ludicrous.”
• 77 percent of Americans think the NATO alliance should be maintained, while 19 percent think it’s no longer necessary, according to Gallup.
• North Korea is steadily adding to its nuclear stockpile. Its Sohae rocket launch site is back to “normal operational status” just one week after the Hanoi summit ended in “no deal.”
• House Democrats Peter DeFazio and Alexandria Ocasio-Cortez proposed companion legislation introduced by Hawaii Sen. Brian Schatz to tax securities transactions.
• Merrill Lynch is planning for its clients to live to 100.
• Forbes lists 2,153 billionaires (worth a combined $8.7 trillion) on its 33rd annual World’s Billionaires list, down from 2,208 ($9.1 trillion) in 2018.
• American consumers have been saddled with $69 billion in added costs because of tariffs the U.S. imposed last year.
• Investors are putting money into emerging markets at the fastest clip in a year, highlighting how many have regained their taste for risk just months after selling buffeted global indexes.
• America’s least favorite “company” is the U.S. government.
• Fraudsters are beginning to target financial advisors in order to obtain client information and steal their money.
• The 12.5 percent jump in the 2018 trade deficit, reported last week by the Commerce Department, is the result of a growing economy. Despite President Trump’s regular promises to cut it and his failure to do so, it is not something amiss.
• Mark Zuckerberg’s announcement last week (“A Privacy-Focused Vision for Social Networking”) is a clear response to public outcry over Facebook’s flawed custody of users’ data (and ironic since selling your personal information is quite literally its business model).
• An energy fix for the planet?
• In the face of daunting odds, these women made history in finance, investing and economics.
• Theresa May warns Brexit may not happen.
• The 2019 edition of the JPMAM Guide to Retirement is out.

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Strong Start to the Year Continues

February was in the books as of Thursday, and it was another good (but not great: S&P 500 +3.21%) month for stocks. December was the worst December for the market since the 1930s (-9.03%), and that was followed by the best January since 1987 (+8.01%). While February was good, trading was very quiet. The S&P 500 has closed above its 10-day moving average for 38 straight sessions. That’s the longest such streak in years.

Since 1938, there have been 30 years where both January and February have been positive, and 29 of those years out of 30 have ended up positive, with an average of over 20 percent. This has been the best first two months of a year since 1987, but that year didn’t turn out so well. Each sector in the S&P 500 notched gains for the second consecutive month for the first time since 2013, led by industrials (+19%), energy (+14%) and technology (+14%).

Eight S&P 500 companies rose more than 40 percent in the first two months of the year: Coty, Xerox, Hanesbrands, Xilinx, Mattel, Hess, General Electric, and Chipotle. The index’s eight worst performers, Kraft Heinz, Macy’s, Take-Two, AbbVie, CenturyLink, Newell Brands, CVS Health, and ResMed, all fell at least 10 percent. With 90 percent of S&P 500 stocks above their 50-day moving average, many analysts expect this good run to continue, at least for a while.

The Dow, Nasdaq and Russell 2000 have each climbed in eight consecutive weeks to start 2019. Friday marked the first such occurrence for the Dow since 1964, first for the Nasdaq since 1976 and first ever for the Russell, according to Dow Jones Market Data.

The major domestic stock indexes were mixed but mostly positive last week. The tech-heavy Nasdaq performed best, while the smaller-cap benchmarks lagged. Within the S&P 500, utilities stocks outperformed, while materials shares lagged.

Signs of progress in U.S.-China trade negotiations seemed to lift sentiment for much of the week. Stocks jumped at the start of trading Monday following tweets from President Trump over the weekend announcing that he would delay the implementation of higher tariffs on certain Chinese goods scheduled for March 1. Mr. Trump cited “substantial progress” on a range of issues, including intellectual property protection, technology transfer, currency manipulation, and promised increases in Chinese purchases of U.S. agricultural products and services.

On Wednesday, stocks fell back after the administration’s chief trade negotiator, Robert Lighthizer, told a congressional committee that “much still needs to be done” before an agreement could be reached. Bloomberg reported on Thursday afternoon, however, that U.S. officials were drafting a deal that President Trump and Chinese President Xi Jinping could sign as early as mid-March.

The week brought some important economic releases, several of which had been delayed because of the partial government shutdown that ended in late January, but they did not appear to drive the market decisively in either direction. December data were generally disappointing while more current data were generally more promising. The manufacturing sector remained a weak spot, however, with two separate gauges of manufacturing activity in February falling more than expected.

A measure of consumer confidence in the U.S. rebounded in February. Data released Tuesday showed U.S. home building starts in December were the lowest since September 2016, and the 11.2 percent fall from November was the biggest one-month decline since January 2007. But U.S. building permits rose during the month, by 0.3 percent, meaning a sharp divergence between the number of actual building constructions started and the number of permits filed to build.

The U.S. economy grew at a strong 2.9 percent rate in 2018, just missing President Trump’s 3 percent goal, but at only a 2.6 percent clip in 4Q. Still, by one measure, the U.S. just enjoyed the best full year of economic growth since 2005. So, growth is slowing, but not as much as feared. But business investment dwindled as 2018 progressed and ended the year more with a whimper than a bang, the report showed (the Fed said as much back in November). The U.S. homeownership rate climbed in the fourth quarter to the highest level in nearly five years. Federal Reserve Chairman Jerome Powell said, “The economy is in a good place.”

Longer-term U.S. Treasury yields moved higher for the week, with the yield on the benchmark 10-year note touching its highest level in a month. The 10-year yield moved from 2.67 percent at the start of last week to 2.76 percent at Friday’s close.

In overseas trading, the pan-European STOXX Europe 600 rose despite escalating geopolitical tensions between nuclear powers Pakistan and India and the abrupt end to the U.S.-North Korea summit. As in the U.S., renewed hopes for a U.S.-China trade agreement buoyed stocks. Japanese stocks were up modestly as well.

Mainland Chinese stocks entered bull market territory, with the major indexes up over 20 percent from their recent lows, after MSCI announced that it would quadruple the weighting of China shares in its widely used global benchmarks this year. For the week, the Shanghai Composite Index surged 6.77 percent, marking the benchmark’s biggest weekly gain since June 2015. The large-cap CSI 300, considered China’s blue chip benchmark, added 6.52 percent. Buying from foreign investors ahead of MSCI’s decision helped drive both indexes higher on Friday, which capped a stellar month for Chinese stocks. U.S. dollar- and yuan-denominated Chinese A shares rose 14.89 percent and 25.34 percent, respectively, through the end of February, making them among the best year-to-date performers in emerging markets, according to MSCI data.

Other significant news and notes follow.

The latest annual edition of the Global Investment Returns Yearbook is out and it’s impressive, as always.

As noted above, Chinese domestic stocks are in a bull market. Still, the CSI 300 remains well below the 2007 record high and below two other recent peaks since 2015. However, China’s latest purchasing managers index, the first official gauge for February, showed activity slumped further while new export orders also slid. Meanwhile, U.S. companies are planning their lowest rate of expansion in China since 2016. Imports to and exports from China plummeted, a sign that higher tariffs are cooling global economic growth.

The global economy is slowing.

The CBO says the U.S. will run out of money by September without a debt limit increase. Keith Hall, director of the CBO, forecasts that U.S. debt will grow to 93 percent of GDP by 2029, and 150 percent by 2049, the largest in U.S. history. That’s up from 78 percent of GDP at the end of last year and 34 percent before the Financial Crisis.

Even though U.S. unemployment is near half-century lows and companies are routinely complaining of labor shortages, labor’s share of domestic income has been declining since 1970.

Last week included the first Friday of the month, but it wasn’t a “Jobs Friday.” The February jobs report comes out March 8. And no, it wasn’t delayed by the government shutdown. The report is not tied to the first Friday of the month, as is often assumed. Rather, it’s tied to two separate surveys. One covers households during the week that includes the 12th of the month, and the other asks employers about pay periods that include the 12th. Answers are collected the next week, in this case the week closing February 23, which didn’t leave enough time for the Department of Labor’s numbers crunchers to produce a report by Friday. Because February is the shortest month, its report often gets delivered on the second Friday of March.

Federal Reserve officials are considering whether to allow inflation to rise above their 2 percent target more often. When the inflation target topic came up a decade ago, former Fed chairman Paul Volcker wasn’t thrilled. “I don’t get it,” he said. By setting 2 percent as an inflation objective, the Fed is “telling people in a generation they’re going to be losing half their purchasing power.”

Study finds that clients prefer fee-based relationships to commissions.

You may not be hearing the name Merrill Lynch much anymore, now that Bank of America is phasing out the 105-year-old brand.

The SEC is reviewing a series of bond trades by three insurance companies tied to Guggenheim Partners. The regulator also asked a court to hold Tesla CEO Elon Musk in contempt for a February 19 tweet that said Tesla would make about half a million cars in 2019.

New research suggests that the retirement crisis is real and a new survey shows that even workers in countries with strong social safety nets fret over their financial futures.

Ten stocks that were the leading hedge fund holdings in 4Q 2018. Note, though, the crowded hedge fund trades are risky.

Life insurers want to creep on your Instagram.

The government may be the key player in the U.S. economy in the decade ahead.

U.S. crude oil has rebounded 22 percent in the first two months of the year, its best such start in figures going back to 1984, according to Dow Jones Market Data. Oil is heading for its best two-month stretch generally since 2016, when prices recovered after dipping below $27 a barrel early that year.

President Trump’s talks with North Korea ended with his abrupt exit after the two sides couldn’t agree on a deal to relieve Pyongyang of U.S. sanctions in exchange for giving up much of its nuclear-weapons program. “Sometimes you have to walk.”

Financial advisors are 23 percent more stressed than the national average.

How the Financial Crisis did not change the world.

U.S. officials are preparing a final trade deal that President Trump and his Chinese counterpart Xi Jinping could sign in weeks, sources say. But administration officials on the record are sending conflicting signals over the prospects for one. Larry Kudlow said the U.S. was on the verge of an “historic” deal, including a cut in subsidies for state-owned companies, and that “progress has been terrific.” But Steven Mnuchin echoed Robert Lighthizer’s more cautious tone and said there was “more work to do.” A summit with Xi may come in mid-March, one source said.Many outside experts fear the disagreements between the two countries might be too big to resolve, and that we should prepare for a future in which talks fail and the trade war becomes permanent.

The algorithms behind so-called trend-following quants suffer from many of the same weaknesses a mortal brain might.

Theresa May is facing an apparently impossible task as she tries to get her Brexit deal approved by Parliament in the month that remains. The Prime Minister’s spokesman said there was still “significant” work to do. But Ms. May promised to have another vote in Parliament by March 12, so the question is whether she’s gotten any closer to winning the support she needs. This is the new Brexit math.

Central banks around the world are embracing the virtue of patience. Federal Reserve policymakers have said the U.S. economy is in decent shape but with risks to the downside, therefore any more interest rate hikes will be dependent on incoming data quelling concerns about the outlook. The European Central Bank, meanwhile, is seen taking its time deciding on whether the slowdown in the region’s economy is sufficient to warrant taking policy action or reviving some form of long-term loans for the banking sector. Weak underlying inflation isn’t making that decision any easier.

Ten big global challenges technology could solve.

Pakistan and India came closer to the precipice of war this week than they have in decades, and they may have further yet to go.

The annual business and politics study from Global Strategy Group shows that Americans tend to have pre-existing notions about the political leanings of certain brands.

Index provider MSCI said it would more than quadruple the weighting of mainland Chinese companies in an influential global benchmark. “Passive” investing, indeed. Insiders own most of the stocks there now, and they are selling.

Gap will split into two public companies, the profitable Old Navy brand and everything else.

The best performing asset over the past 20 years.

The Wall Street Journal’s 2019 Tax Guide will help you sort through the confusion of doing your taxes for the first time under the new law.

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The Streak Continues

On Christmas Eve, most people involved in the markets seemed to think stocks had further to fall, perhaps a lot further. Accordingly, right at the low people were worried that the low was still a significant ways away. I saw the same thing in March of 2009. Now we are two months later, and the S&P 500 is up roughly 18 percent since Christmas Eve. That’s a huge gain for such a short amount of time. We have seen nine straight weeks of gains.

Domestic equities moved modestly higher again last week, helping the Dow record its longest streak of weekly gains in nearly a quarter of a century. Materials and utilities stocks led the gains within the S&P 500, while healthcare shares trailed, held down in part by a disappointing 2019 earnings projection from CVS. Communication services stocks were also weak following disappointing results from video gaming companies. Nearly 90 percent of S&P 500 companies had reported fourth-quarter results by the end of the week, according to Thomson Reuters.

One driver of the week’s gains appeared to be the release of the minutes from the Federal Reserve’s last policy meeting, which highlighted that Fed officials aren’t sure they need to raise rates this year. Policymakers also indicated that they would stop shrinking the central bank’s balance sheet by the end of the year, a drawdown that has slowly been removing liquidity from the financial system since late 2017.

The trade picture brightened somewhat, supporting stock prices, on reports that trade negotiations with the U.S. were picking up, increasing the likelihood of a bilateral trade deal before a temporary truce ends March 1. On Friday, U.S. President Donald Trump met Chinese Vice Premier Liu He, the country’s top trade negotiator, following the week’s lower level trade talks, after which Mr. Trump said that he will “probably” host Chinese President Xi Jinping next month at his Mar-a-Lago estate in Florida and expects to finalize a sweeping trade agreement that would end a nearly year-long tariff war. However, multiple reports suggest that the two sides remain far apart.

The week’s economic data were mixed, but some concerning reports released Thursday may have weighed on sentiment a bit. Core (ex-aircraft and defense) durable goods orders fell back in December, continuing a pattern of slowing business investment. A more current gauge of factory activity in the mid-Atlantic also surprised on the downside, and existing home sales in January fell back to their lowest level in over three years. On the positive side, weekly jobless claims fell more than expected, and IHS Markit’s gauge of service sector activity surprised on the upside.

Longer-term bond yields remained roughly steady for the week. The benchmark 10-year U.S. Treasury note started and ended last week yielding 2.65 percent.

Overseas, the pan-European STOXX Europe 600 rose throughout the back half of the week amid investor optimism on trade. The UK FTSE 100 lost ground, however, as the possibility of a no-deal Brexit grew. In Japan, the Nikkei 225 shrugged off disappointing economic data and rallied 2.5 percent for the week. The large-cap and small-cap TOPIX indexes also generated strong gains of about 2 percent for the week.Chinese stocks also posted a weekly gain, also on trade optimism.

Other news and notes follow:

• Datatrek Research points out that the year’s first month typically sets a trend for the first quarter. January’s S&P 500 return of 7.9 percent was more than one standard deviation above the mean monthly return (+1.1 percent). In the eight complete years over the past 60 years when January has posted similarly strong results, February tacked on an average 1.3 percent further gain. In those same eight years, March returns averaged another 1.5 percent advance and in no case did any of these eight years show a negative Q1 return.
• BMO Capital Markets interest-rate strategist Jon Hill argues the current rally in stocks is not based on positive growth expectations for the economy, but on the Fed’s reversal of its plan to raise interest rates.
• Economists at ratings agency S&P Global raised the probability of a U.S. recession in 2019 to 20–25 percent Wednesday, in large part because of the flattening U.S. Treasury yield curve. That’s higher than its previous assessment of 15–20 percent three months ago. “Although economic indicators continue to point to a sustained economic expansion, heightened investor concerns over global economic developments led to market volatility and disruptions late last year, leaving a mixed picture for the second oldest expansion in U.S. history,” said Beth Ann Bovino, U.S. chief economist at S&P Global.
• As trade negotiations with China resumed last week, the Trump administration was racing to strike a deal that will result in long-term reforms – and prove that tariffs are an effective battering ram to open markets. The parties have begun to sketch the outline of a potential deal to end their trade dispute, including work on drawing up six memoranda of understanding on structural issues. The stock market keeps getting juiced by news of progress in the trade talks, but the two countries may forever be stuck on their biggest differences because neither recognizes its own weaknesses.China’s economy is in hot water, and Beijing seems to be relying on its go-to recession-fighting strategy of encouraging lending for massive construction projects. The true leading cause of the slowdown is China’s fading growth. However, avoiding recession today could make for a disappointing tomorrow for China. China also must be fudging its unemployment numbers, which have been almost comically stable over the years. Meanwhile, the Trump administration wants China to keep its currency stable, but the yuan is tied to the dollar. Instability in this case is being imported from the U.S. And the Chinese government continues to build an enormous system of surveillance and control.
• All major Asian economies, but for the Philippines, now see inflation rates at or below the lower end of their central banks’ target.
• Trade tensions, slower economic growth, and Brexit are denting the outlook for companies in Europe. Positive economic news has long been absent. On account of negative yields, investors around the globe are effectively paying governments to hold more than $11 trillion of their bonds, a fresh sign of ebbing economic confidence in Europe and Japan.
• The Trump administration is smart to commit to AI research.
• Neither political party seems interested in talking about, much less dealing with the national debt. President Trump didn’t talk about it during his State of the Union. Neither did Stacey Abrams in her Democratic response. All told, Washington’s red-ink alarms have gone dead, even though the annual deficit will pass the trillion-dollar mark starting in 2022.
• Does indexing threaten the market?
• The reversal of quantitative tightening has now gone global.
• The tech-heavy Nasdaq ended its fourth-shortest bear market ever February 15, climbing more than 20 percent above its Christmas Eve lows to start a new bull market. The Nasdaq was the last of the major indexes to leave bear market territory and is still 7.9 percent below last August’s record high.
• The Wall Street Journal’s 2019 Tax Guide will help you sort through the confusion of doing your taxes for the first time under the new law.
• Apple is shaking up its executive team, preparing for life after the iPhone. It is also reordering priorities across its services, artificial intelligence, hardware and retail divisions. The changes have included high-profile hires, noteworthy departures, meaningful promotions, and consequential restructurings.
• Nike had a badly timed shoe malfunction. The stock dropped 1.27 percent, shedding $1.6 billion in market cap.
• Kraft Heinz wrote down the value of its Kraft and Oscar Mayer brands by $15.4 billion, slashed its dividend, and disclosed an investigation by the SEC. Not surprisingly, the company’s stock was down big in response.
• Walmart’s fourth quarter profits and revenues came in above expectations, while U.S. same-store sales rose 4.2 percent — more than the 3.2 percent analysts expected.
• President Donald Trump wants to save coal. Glencore Plc, the world’s biggest coal supplier, is telling us that cause is already lost.
• After tracking closely in the three decades following World War II, from 1979 to 2017 productivity grew 70.3 percent, while hourly compensation of production and nonsupervisory workers grew just 11.1 percent.
• Even when they’re served with financial advice, Americans are stressing over going broke in retirement.
• The three leading insurance and agent associations are working together to support a state “standard of care” proposal for agents that rejects fiduciary responsibility for agents and financial advisors.
• Millions of Americans have been jobless for a year or more. Many can’t — or won’t — go where the jobs are.
• The U.S. Treasury’s auction of $8 billion in 30-year inflation-protected bonds Thursday met with strong demand, a sign that some investors see potential for consumer prices to rise.
• A senior EU economist suggests anew that the political upheaval on both sides of the Atlantic could erupt into World War III.
• Financial Windfalls: 15 stories of the money that changed everything.
• “Subprime” corporate debt is now a problem.
• In January, active asset flows beat passive.
• The greatest investor you’ve never heard of.

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Bumping Up Against the 200-DMA

The S&P 500’s 200-day moving average is important to trend-following tactical investors looking for signals about whether they should be in or out of the market. How might this work? Here’s one simple and popular iteration.

If the S&P 500 is above its 200-DMA, own it. If it closes below, shift to bonds (say, the Barclay’s Aggregate). This approach has provided slightly better returns than the S&P with lower drawdowns since 1997, when daily data became available. However, that result assumes perfect execution, free trading, and no taxes, none of which are available. Moreover, it assumes we’ll be able to stick to the model through thick and thin, through 160 signals during that time. Were you using that approach currently, for example, you’d still be out of the market despite its big gains since Christmas.

Anyway, last week provided a good example of how the 200-DMA can impact the markets. The S&P 500 has been recovering nicely since Christmas, but on Tuesday it ran up against the 200-DMA, leading to losing days on Wednesday and Thursday and only a slight uptick on Friday. Prior to those two losing days, the stock market had had only six losing days this year. The down-up market of the last few months has drawn out a nice little “V” sign on everyone’s stock chart. We’ll see if this difficulty is a blip or has the makings of a “W.”

Now the news.

Domestic stocks moved very modestly higher last week, helping most of the major indexes record their seventh consecutive weekly gain. Within the S&P 500, utilities shares fared best, followed by the larger industrials and information technology sectors. Energy stocks fared worst as oil prices drifted lower.

The Sino-U.S. trade dispute moved back into the headlines last week and seemed to play a large role in driving sentiment. Stocks reversed an early rally Thursday and headed lower following remarks from National Economic Council Director Larry Kudlow, who told Fox News that negotiators had “miles to go before we sleep,” echoing not only Robert Frost but also Commerce Secretary Wilbur Ross, whose remarks about being “miles and miles” from an agreement sent markets lower in late January.

Later Thursday, CNBC reported that President Trump and Chinese President Xi were unlikely to meet before March 1, the 90-day tariff truce deadline the U.S. has established prior to raising the tariff rate on Chinese goods to 25 percent. CNBC also reported that the U.S. was likely to keep the current 10 percent tariff rate steady in the absence of a meeting, but confidence in a delay seemed to diminish Friday, sending stocks lower again. Weak economic data from overseas, particularly from Europe, also seemed to weigh on sentiment.

The pan-European STOXX Europe 600 was slightly lower on the week amid fresh trade worries and weak data that underscored the extent of the growth slowdown in the eurozone and its largest economy, Germany. In Asia, Japanese were down a bit more for similar reasons while Chinese markets were closed last week, as the country brought in the Year of the Pig, symbolic of wealth.

After the Fed’s dramatic reversal nearly two weeks ago, analysts have been left to ponder why Chairman Powell and his colleagues changed course. The best bet is because of China, where the economic data are troubling. Three years ago, then Fed Chair Janet Yellen executed a similar course correction in response to weakening Chinese data. Instead of four rate hikes in 2016, as previously signaled, the Fed proffered only one. China’s manufacturing numbers today are back to where they were when Yellen’s Fed made its turn. A new turn is not predetermined, obviously, but Powell’s remarks give him that flexibility, should he decide to exercise it.

Last week’s jobs report was terrific, as I reported here a week ago, but the bond market’s reaction to it has been surprisingly subdued. On Friday, the benchmark 10-year U.S. Treasury note closed at 2.63 percent. That level hardly suggests an overheating economy. Indeed, Yellen recently said that it’s possible that the Fed’s next move could be a rate cut. I wouldn’t say that’s likely, but it’s hardly unreasonable. The evidence keeps getting clearer that, as I argued here a week ago, the Fed won’t likely do much on interest rates in 2019, which is good news for stocks.

Other news and notes follow.

The latest SPIVA results are in from S&P and they are consistent with what we have seen before. Institutional money managers routinely underperform their benchmarks, largely on account of fees. Morningstar came to a similar conclusion: 2018 was yet another year to forget for active managers.

I am not the only one identifying China as a key threat to the stock-market rebound, a month after warnings of a slowdown in the world’s second-largest economy rattled markets across the globe. However, international investors poured more money into Chinese stocks last month than in any month on record. As noted above, stock markets in China were closed last week, which also means at least seven days without any disappointing data. The U.S. is dispatching its chief trade negotiator, Robert Lighthizer, and Treasury Secretary Steven Mnuchin to Beijing to continue trade talks as a March 1 deadline nears. While the two sides have made progress, they are still a long way from a deal. And President Trump probably won’t meet Xi Jinping before the deadline.

Small business owners’ confidence in the economy fell for the fourth straight month in December, while their outlook on business conditions sank to the lowest since late 2016. Consumers’ future expectations for the economy posted the largest three-month decline since late 2011. The Fed’s latest survey of senior loan officers found that banks expected tighter standards, weaker demand, and worse performance for business and household loans this year. Such measures of sentiment continue to show negative economic expectations while actual economic trackers, such as the most recent jobs report, continue to be strong. That sort of divergence often augurs a coming downturn, sometimes within six months or so.

Twenty-six of the 30 stocks in the Dow Jones Industrial Average and 465 of those in the S&P 500 have climbed this year. All 11 S&P 500 sectors are in the green for 2019. After months of downward revisions, analysts now expect the S&P 500 to post a year-over-year earnings decline in the first quarter of 2019, according to FactSet. As recently as September 30, analysts predicted the earnings growth rate for the current quarter would hit 6.7 percent, in part due to the impact of the 2017 tax cuts burning off. Earnings growth in the fourth quarter of 2018 is on track to hit 12 percent, with nearly half of S&P 500 companies having released quarterly results so far. If their estimates prove to be true, it would be the first year-over-year contraction of S&P earnings since the second quarter of 2016.

How are President Trump’s tariffs working? A typical American family will spend $60 extra per year due to tariffs. Duties on steel and aluminum cost Ford $750 million last year, according to the company. As a result, profit-sharing checks to Ford’s hourly workers were slashed anywhere from $750 to $1,850 each.

Americans 60 years old or more owed $86 billion in student loan debt, their children’s and their own, at last count. Student debt is a major contributor to the overall increasing debt burden held by seniors.

After a banner year, many small businesses are becoming more cautious about their investment and hiring plans. Just 14 percent expect the economy to improve this year, while 36 percent expect it to get worse.

U.S. stocks and bonds have been rallying together of late, an atypical pattern that some worry suggests the January rebound in equities is fated to run up against a painful reversal.

Bill Gross, the one-time “Bond King,” retired after a disappointing final act. His farewell interview is here. Despite Gross’s misfire, active managers need to make risky wagers, even if they could go bust, if they are to outperform.

Senators Bernie Sanders and Chuck Schumer argue that it’s necessary to put limits on how much stock companies can buy back and on the dividends they pay, and at least five declared or likely Democratic presidential candidates want to restrict how much stock U.S. companies can buy back from shareholders. It may be good politics, but it is an argument lacking supporting evidence. Instead of restricting share repurchases or dividends, we should make it easier for Americans to invest in America via the stock market.

Amazon founder Jeff Bezos, President Trump’s foremost nemesis in the business world, has profited more than anybody else during the Trump presidency. Since the 2016 election, Bezos has become the world’s richest person, his net worth swelling by $66.8 billion, to $135.4 billion, making his fortune a third bigger than Bill Gates’s, and almost 50 times greater than the president’s, according to the Bloomberg Billionaires Index. Bezos also made big news last week by taking on The National Enquirer (leading to obvious jokes, such as “Alexa, destroy my enemies,” and an obvious New York Post cover). Under the headline “No thank you, Mr. Pecker” (referring to David Pecker, CEO of American Media, publisher of the Enquirer, and close friend and supporter of the president), Bezos posted the full text of emails from the publisher — including the cell numbers of two executives — that he said constitute “extortion and blackmail.” This will be a fight to watch.

General Motors began more layoffs last Monday, axing 4,000 workers. The new round of cuts means GM has eliminated more than 14,000 jobs in the U.S. and Canada since November. Car dealers are beginning 2019 with a heavier inventory of unsold vehicles on their lots.

Concerns about the government shutdown and a drop in new orders crimped the U.S. services sector’s pace of expansion in January. The Institute for Supply Management’s non-manufacturing purchasing managers index fell to 56.7 in January from 58.0 in December.

President Trump gave his State of the Union speech last week. Mr. Trump said only three things stand in the way of an “economic miracle” taking place: foolish wars, politics, and ridiculous partisan investigations. Notably absent from the list of impediments was the Federal Reserve.

A steady decline in foreign demand for U.S. government bonds hasn’t seemed to have the impact on rates some predicted. Foreign ownership of U.S. government debt has been decreasing since it reached a peak of about 55 percent during the financial crisis in 2008. Foreign ownership fell below 40 percent in November.

A wave of bankruptcies is sweeping the Farm Belt as trade disputes add pain to already low commodity prices.

SunTrust Banks and BB&T said they agreed to combine in a merger of equals valued at about $66 billion, an all-stock deal that will create the sixth-largest U.S. bank in terms of assets and deposits.

New research casts further doubt on corporate welfare. When companies promise thousands of high-paying jobs in exchange for major tax breaks and incentives, those jobs often don’t show up.

Maryland has become the latest state to propose a fiduciary standard for brokers and insurance producers. The SEC’s delayed best interest standard will likely come this fall.

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Volatile with a Strong Ending

U.S. stocks bounced back from their worst two-day start to a year since 2000, soaring Friday after fresh signs of economic strength eased fears that slowing growth around the world could drag on the U.S. expansion. The Dow jumped more than 700 points as a better-than-expected December jobs report supported a healthy labor market. Stocks rose further after Fed Chairman Jerome Powell said economic data suggests good momentum heading into the new year, but the central bank is “prepared to adjust policy quickly and flexibly” if necessary.

For the week, domestic stocks rose for a second consecutive week, but remained extremely volatile. The smaller-cap benchmarks, which typically see more volatility, performed the best after suffering the biggest declines in 2018 — the worst overall year for stocks in a decade. The week’s gains left only the small-cap Russell 2000 in bear market territory, down roughly 21 percent from its recent high.

Within the S&P 500, energy shares were especially strong, supported by a rebound in oil prices. Communication services shares also outperformed, aided by both a solid rise in Netflix and gains in the shares of traditional telecommunications firms, whose dividends have become more appealing following the recent drop in bond yields. Technology stocks underperformed, hurt by a sharp drop in Apple’s stock on Thursday. Healthcare stocks also underperformed as uncertainty lingered over the future of the Affordable Care Act and the potential for legislation regulating drug prices to be introduced in the new Congress.

The week started off well, helped in part by hopeful signs in the ongoing U.S.-China trade dispute. President Trump tweeted over last weekend that he and President Xi Jinping had made “big progress” in trade talks, sending shares higher when trading opened Monday. Trading was relatively light in advance of the New Year’s holiday, however, and some weak economic data out of China might have limited the gains. Indeed, worries about China sent the indexes sharply lower when trading reopened Wednesday, although the market rallied in the afternoon and closed modestly higher.

After the market’s close on Wednesday, Apple CEO Tim Cook warned that the company was lowering its quarterly revenue guidance – the first such cut in 15 years. Apple shares tumbled nearly 10 percent on Thursday in response, dragging the large-cap indexes lower. Cook’s letter also soured sentiment broadly because he blamed slowing iPhone demand in China, which he attributed in turn to economic weakness resulting from the trade battle with the U.S. Yet some critics suggested that Apple’s strategy in China might be to blame, with Chinese consumers favoring other, more affordable (and largely Chinese) smartphones.

The week’s economic data also played a role in moving markets. Thursday’s sell-off appeared partly due to a sharp decline in the Purchasing Managers’ Index, particularly the gauge of new order activity. The decline followed recent disappointing data on durable goods orders and seemed to confirm a substantial slowdown in business investment late in 2018. Markets jumped on much better news on Friday. The Labor Department reported that employers had added 312,000 nonfarm jobs in December, while weaker showings in previous months were revised upward. Average hourly earnings also increased at an impressive rate.

Stocks got a further boost Friday from the reassurance offered by Fed Chair Powell. Taking questions at an economic conference, Powell stressed that the Fed would deepen its focus on economic conditions in 2019 and would not hesitate to respond with all the tools at its disposal to counteract an economic downturn or financial turmoil. Powell also stressed that, while the downturn in manufacturing bore watching, hard economic data remained generally sound.

Despite surging Friday in response to Powell’s comments and the payrolls report, U.S. Treasury yields ended the week lower as traders sought out safe-haven assets in the wake of continued volatility in equity markets and geopolitical uncertainty. The benchmark 10-year U.S. Treasury note ended the week yielding 2.67 percent.

After a weak start last week, the pan-European STOXX Europe 600 gained ground and was up about 2 percent for the week, buoyed by prospects of fresh U.S.-Chinese trade talks. On Thursday, however, European shares were caught in the global sell-off triggered by Apple’s sales projection downgrade, which reinforced expectations that a global economic slowdown is underway. For the week, Germany’s DAX rose about 2 percent, France’s CAC-40 was up about 1 percent, and the UK’s FTSE Index was up about 1.5 percent.

Mainland Chinese stocks advanced in the holiday-shortened week, and the country’s central bank stepped in with more targeted stimulus measures after a mixed batch of indicators pointed to a deepening economic slowdown. For the week, the Shanghai Composite and the large-cap CSI 300, China’s blue chip benchmark, each advanced 0.8 percent. After Friday’s market close, the People’s Bank of China cut the reserve requirements for Chinese banks, which will free up a net of 800 billion yuan (roughly $117 billion) for lending, the central bank said. The move marked the fifth such cut since the start of 2018 for China, which is trying to support a slowing economy that has been further weakened by U.S. tariffs. Japanese stocks dropped more than 2 percent in their holiday shortened week.

Other news and notes follow.

U.S. employers added jobs in December at the fastest pace since February and wages surged, suggesting the economy maintained strong momentum at the end of 2018 even as financial markets sank. U.S. nonfarm payrolls increased a seasonally adjusted 312,000 last month, the Labor Department reported Friday. Average hourly earnings rose a seasonally adjusted 0.4 percent from November and 3.2 percent from December 2017, the best full-year gain since 2008. The unemployment rate climbed to 3.9 percent from 3.7 percent in November, mainly due to more people entering the workforce.

On Friday, Federal Reserve Chairman Jerome Powell said the Fed is prepared to be patient given tension between signals from financial markets and the economy, perhaps signaling no imminent rate increase. “With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves,” he said in a speech in Atlanta. Mr. Powell also addressed speculation that President Trump’s unhappiness over monetary policy might lead to his removal as Fed chairman. He said he wouldn’t resign his post if Mr. Trump asked him to do so.

A meeting Friday between President Trump and newly powerful Democrats ended in varied descriptions of what transpired, with Republicans expressing fresh optimism a deal could be struck and their political opponents offering drearier views of a compromise. However, both sides acknowledged that the president said he’d be willing to “keep the government closed for a very long period of time – months or even years.”

A new Congress was sworn in last week. The Democrats regained control of the House and Nancy Pelosi returned to her role as Speaker. Here’s who’s who in the new House and Senate.

Fears about the global economy intensified, with downbeat news sending U.S. stocks falling Thursday and driving bond yields to their lowest level in almost a year.

Bitcoin slumped about 70 percent in 2018, erasing $160 billion of digital wealth as the cryptocurrency market’s shaky footing was exposed.

In the largest monthly exodus since at least 1992, investors yanked a net $75.5 billion from U.S. mutual funds and exchange-traded funds in December. But some retail investors are looking to hold on through the volatility and even take advantage of the rout.

The yield curve is sending an increasingly worrisome signal about the economy by flattening, as the gap between shorter and longer-term U.S. Treasury paper narrows.

When it comes to mutual funds and exchange-traded funds that buy U.S. stocks, those that passively track indexes now hold 48 percent of assets, according to estimates from Morningstar. They’ll top 50 percent in 2019 if the current trend holds.

In the aftermath of California’s Camp fire — 86 dead, more than 13,900 homes destroyed and the town of Paradise decimated — local and state officials said the tragedy was unforeseen and unavoidable, an “unprecedented” monster of fire. In truth, the destruction was utterly predictable, and the community’s struggles to deal with the fire were the result of lessons forgotten and warnings ignored. The miracle of the tragedy, local officials now concede, is how many people escaped.

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Simultaneous Corrections

The Dow fell 2 percent on Friday, while the S&P 500 fell 1.9 percent and the Nasdaq dropped nearly 2.3 percent. All three are now simultaneously in correction territory — typically defined as a fall of at least 10 percent from a recent high — for the first time since March 2016. The tech-heavy Nasdaq was the sole major benchmark to emerge from last week in positive territory YTD. Smaller-cap shares performed even worse than large caps, with both the S&P MidCap 400 and the Russell 2000 hitting new 52-week lows. Within the S&P 500, utilities shares performed best, while financial shares were notably weak because of concerns over tighter lending margins due to declines in longer-term U.S. Treasury yields.

Fears of a slowdown in the global economy seemed to be a major factor weighing on sentiment last week. News that Chinese exports had slowed were partly responsible for a sharp decline as trading opened Monday morning, although stocks managed to climb back into positive territory by the end of the day. Further disappointing data from China on Friday morning seemed to contribute to another downturn, and traders also worried about negative economic signals from Germany and France.

The ongoing U.S. trade dispute with China also weighed on sentiment early last week, although some positive later developments seemed to boost markets. Over the previous weekend, the Chinese vice foreign minister summoned the U.S. and Canadian ambassadors to protest the “lawless” arrest in Vancouver of a prominent executive of Chinese telecom company Huawei the previous week, an action taken at the request of U.S. officials in response to Huawei’s alleged violation of U.S. sanctions targeting Iran. The controversy appeared to grow more tense following the detention of two Canadian citizens in China in an apparent retaliation. On Wednesday, President Trump may have defused the situation somewhat by telling Reuters that he would consider intervening in the case to help achieve a trade deal. That statement also provoked controversy because it impugns the integrity of the rule of law in the United States by suggesting that politics can override the law. Internationally, the U.S. gets much of its moral authority (and the dollar maintains its primary reserve currency status) because the American legal system is even-handed.

Evidence of more tangible progress in U.S.-China negotiations also arrived Wednesday and seemed to give markets a boost. The Wall Street Journal reported that China was again buying U.S. soybeans, having cut off purchases several months earlier in response to new U.S. tariffs, news that was confirmed by the U.S. Department of Agriculture on Thursday. The Journal also reported that Chinese officials were redrafting their “Made in China 2025” plan — a set of measures designed to assure China’s global dominance in emerging technologies that has drawn condemnation from U.S. officials — while also considering lowering tariffs on U.S. autos.

Last week’s economic data brought some encouraging news following a string of recent disappointments. Weekly jobless claims, which had edged up over the past two months, fell sharply back to near five-decade lows. November retail sales also rose at a solid pace when taking falling gas prices into account, and robust October sales were revised even higher. Longer-term U.S. Treasury yields ended last week slightly higher.

Across the pond, the pan-European STOXX 600 rose last week, but the euro lost ground against the U.S. dollar, as the European Central Bank ended its monthly bond-buying program and left its key lending rates unchanged. The bank said that it expects policy to stay at current levels at least through the summer of 2019 and affirmed that, at the end of December, it will end four years of monthly purchases of new government and corporate bonds that were intended to suppress eurozone bond yields. ECB President Mario Draghi admitted that the change comes as eurozone risks are moving to the downside because of trade tensions, geopolitical turbulence, and volatility in financial markets.

Early last week, the Centre for European Economic Research reported that German economic expectations rose more than expected, while in France, markets received a boost after President Emmanuel Macron announced plans to cut taxes and lift wages for workers in a bid to quell the “yellow vest” social unrest that has gripped the country in recent weeks. News later in the week was not as upbeat, however. The IHS Markit purchasing managers’ index showed that the German and French private sectors slowed sharply in November.

Markets in mainland China advanced last week, as signs of a potential thaw in U.S.-China trade relations were outweighed by data showing that China’s economic slowdown deepened last month. For the week, the Shanghai Composite added 0.35 percent, while the large-cap CSI 300 Index posted a gain of 1.35 percent. Chinese stocks slumped on Friday, however, after Beijing reported that industrial output and retail sales weakened more than expected in November. Industrial production slowed to its lowest point since early 2016, while retail sales fell to its lowest growth level in more than 15 years. Elsewhere in Asia, Indian stocks were volatile but also advanced while Japanese stocks traded lower after an awful GDP report was released on Monday. Japan’s economy contracted at an annualized rate of 2.5 percent in the third quarter, much worse than forecast.

Other news and notes follow:

The Federal Reserve is widely expected to boost interest rates at its regular meeting next week and continue raising them in 2019. But officials have recently signaled a more patient approach to policy in the coming year. A more dovish Fed would likely put pressure on the dollar, as higher borrowing costs make the U.S. currency more attractive to yield-seeking investors. That, in turn, would give large caps a leg up against small caps because a weaker dollar would give multinationals a boost, making U.S. exports relatively less expensive in world markets. Inflation stayed muted last month, defying economic theory that says low unemployment, rising wages and strong economic growth should push prices higher and higher. Private economists in a new survey from The Wall Street Journal dialed back their median forecast for 2019 rate rises, calling for two next year rather than the three they expected when asked last month. The consumer-price index in November rose 2.2 percent from a year earlier while core prices, which strip out volatile food and energy categories, did the same. However, almost half of U.S. chief financial officers believe a recession will strike the U.S. economy by the end of 2019, with the tight labor market and growing trade tensions driving economic jitters among corporate America.

Why we’re safer ten years after the financial crisis.

For the first time since the 1940s, Americans are reaching retirement age in worse financial shape than their parents. An estimated 10 million people older than 65 are still working — an increase of 240 percent since 1985.

The U.S. government’s shutdown of what it called a $100 million real-estate investment scam in Belize highlights a growing concern: the criminal targeting of Americans retiring abroad.

Venture capital firms that increased their proportion of female partner hires by 10 percent had 9.7 percent more profitable exits.

China is promising greater access for foreign companies, the country’s latest effort to resolve trade tensions with the U.S. Officials in Beijing are drafting a replacement for Made in China 2025, a blueprint to make the country a leader in high-tech industries. The revised plan would play down China’s bid to dominate manufacturing and be more open to foreign participation. Meanwhile, the FBI warns that Beijing is stealing American technology to develop its own economy, threatening America’s prosperity and place in the world.

British Prime Minister Theresa May beat back a leadership challenge, subduing a rebellion within her party but leaving her politically wounded and the route to Brexit muddier than ever. To recap: she’s received lukewarm support from her own party and most lawmakers from opposition parties are likely to reject her Brexit deal. Almost any version she negotiates with the EU could well be rejected by Parliament. That suggests the likelihood of two extreme outcomes: either leaving the EU without a deal, a path that could lead to serious economic dislocation, or not leaving the EU at all.

Maurice Obstfeld, chief economist of the International Monetary Fund, warned that global growth is slowing and the U.S. will likely feel the drag. “The slowdown outside the U.S., to the extent we’re seeing signs of that, seems to be more dramatic,” Mr. Obstfeld said ahead of his end-of-the-year departure from the IMF.

In tech, media, and government, size matters.

The Economist warns that Moore’s Law is dying. Chips are so small and so efficient that it costs insane amounts of money to keep the doubling going. Chipmakers jokingly refer to Moore’s second law, which says the cost of a chip factory doubles every four years.

Oil prices tumbled again on Monday amid doubts that OPEC and its allies can actually cut supply. As a result, breakeven rates on U.S. Treasuries, or what investors expect the rate of inflation to average over the life of the securities, dropped dramatically. The 10-year breakeven rate had been camped above 2 percent, the Federal Reserve’s inflation target, for most of the year, but on Monday it dropped to 1.86 percent. Remember, inflation expectations matter a lot to the Fed.

Ten years ago last week, fund adviser Bernard Madoff was arrested by federal agents, accused in separate SEC and FBI complaints of a multibillion-dollar fraud.

Harvard is quietly amassing California vineyards…and the water underneath. In a warming planet, few resources will be more affected than water. Even though there aren’t many ways to make financial investments in water, investors are starting to place bets.

Low-skilled jobs are getting harder to fill. The number of unfilled jobs in the U.S. grew by 1.02 million at the end of October from a year earlier. More than a third of the new openings were in two fields typically packed with entry-level positions: accommodation and food service, and retail. That suggests steady hiring and low unemployment is allowing workers of all stripes to look for higher-paying jobs in other industries.

Baby boomers are aging alone more than any generation in U.S. history, and the resulting loneliness is a looming public-health threat. About one in 11 Americans age 50 and older lacks a spouse, partner or living child, and that portion is projected to grow. It adds up to about eight million people in the U.S. without close kin, the main source of companionship in old age.

Many key commodities are on track to notch declines this year, underlining how fears of slowing growth, global trade tensions and a persistently strong dollar have hammered prices for raw materials. The Bloomberg Commodity Index is down by more than 6 percent this year, led by a nearly 13 percent fall in oil prices. Other raw materials are also headed lower. Those slumps came as investors pulled just over $11 billion from commodity-focused funds over the past six months.

The national housing slowdown is spreading.

The good news: a majority of Americans realize they could use some help with financial planning; the bad news: a large portion of them end up putting it on the back burner because of reluctance and nervousness.

Economists think a trade war between the U.S. and China is the biggest threat to the U.S. economy in 2019. Nearly half who responded to a survey by The Wall Street Journal said a U.S. dispute with Beijing was a greater risk than macroeconomic or financial disruptions. Meanwhile, China’s downturn deepened last month. Industrial production, weighed down by automobile makers and property markets, advanced at the slowest pace since early 2016. Growth in retail sales fell to the lowest level in more than 15 years. Nominally communist China isn’t exactly like the actually communist Soviet Union. But its economy is more Soviet than you think. “And despite its capitalist trappings, the Communist Party is piloting China’s economy in a direction similar to that of the Soviet Union in its twilight,” The Economist writes.

The U.S. budget gap widened in the first two months of the fiscal year as tax collections lagged federal outlays. Customs duties during October and November rose 86 percent to $11.8 billion due to an increase in tariffs (increased consumer prices due to tariffs don’t impact this calculation). But that was hardly enough to offset the month’s $205 billion shortfall. The deficit is headed toward $1 trillion this fiscal year.“Rarely have deficits risen when the economy is booming. And never in modern U.S. history have deficits been so high outside of a war or recession (or their aftermath)…Now would be the time to act: today’s relatively strong economy offers policymakers the opportunity to reduce deficits without fear of worsening a recession or disrupting a fragile recovery,” the Committee for a Responsible Federal Budget writes. The bottom line: This is a deficit of choice.

How would the world change if everyone who wanted to move to a different country was able to do so? Gallup asked “nearly half a million adults in 152 countries” whether they wanted to move and, if so, where they’d go. Where populations would explode: New Zealand (+231%), Singapore (+225%), Iceland (+208%), UAE (+204%), Switzerland (+187%). Where they’d decline: Sierra Leone (-70%), Haiti (-63%), Liberia (-60%), Democratic Republic of the Congo (-50%), Nigeria (-46%). The population of the U.S. would rise by 46 percent to 476 million.

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