During the first half of December, we've continued to see the stock market move lower. Investors have had to contend with several factors that have not only ratcheted up anxiety levels but have also led them to question earnings prospects for 2019.
While the data coming out of the Thanksgiving to Cyber Monday holiday shopping weekend was positive for a number of constituents in the Real Money Post Industrial Average (RMPIA) such as Amazon (AMZN) , Mastercard (MA) and PayPal (PYPL) , economic data points ranging from November Retail Sales and Industrial Production to the IHS Markit Flash December Composite US PMI in December have helped solidify the notion of a slowing global economy. RMPIA is a modified market-cap weighted portfolio consisting of 30 of the most important stocks in the market today.
Tossing some logs on the fire late last week were new findings from the Duke University/CFO Global Business Outlook survey that showed almost half (48.6%) of U.S. chief financial officers believe the United States will be in a recession by the end of next year, while 82% of CFOs surveyed believe that a recession will begin by the end of 2020. That's quite different than the Wall Street consensus, which per The Wall Street Journal's Economic Forecasting Survey sees the speed of the economy slowing from 3.5% in the September 2018 quarter to 2.5% in the current one to 2.4% in the first half of 2019, followed by 2.2% in the back half of next year.
This revelation has added to the list of concerns that have been weighing on the stock market in recent weeks. Those worries include the back and forth on U.S.-China trade, Brexit developments, Italy budget concerns, protests in France, and potential government shutdown that have all raised investor uncertainty levels. This is reflected in last Friday's ending "Extreme Fear" (8) reading on the CNN Business Fear & Greed Index, which is little changed over the last few weeks.
All of this is playing out in the stock market as the number of stocks hitting new highs pales in comparison to hitting 52-week lows. As investors have revisited growth prospects, the major stock indices -- the Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite Index -- fell 5.6%-5.8% during the first half of December. Small-cap stocks, as measured by the Russell 2000, were even harder hit, falling 8.0% for the same period.
With 27 of its 30 constituents declining during the first half of December, the Real Money Post Industrial Average fell 4.8%. Despite steep declines in BlackRock (BLK) , Costco Wholesale (COST) , CVS Health (CVS) , and Adobe Systems (ADBE) , RMPIA was buoyed by shares of Broadcom (AVGO) , Facebook (FB) and PayPal, all three of which generated positive returns over the last two trading weeks. That outperformance thus far in December relative to the major stock market indices led RMPIA to regain ground on a quarter-to-date basis.
As we get ready for the upcoming Christmas and New Year's holiday period that is usually one of the quietest times of the year for the market, two RMPIA constituents, Nike NKE and Walgreens Boots Alliance WBA, will report earnings this week. Also this week, we have the December Federal Reserve monetary policy meeting at which the central bank is widely expected to boost interest rates. What investors are waiting for is the updated economic projections and forward monetary policy commentary from the FOMC meeting this week.
The economic data of late is pointing to a slowing global economy, which combined with the substantial drop in oil prices, has given the Fed far more room to issue dovish comments after this week's all but done December rate hike.
In recent weeks as the Fed has once again signaled it will more than likely remain data dependent in 2019, we've seen a change in the futures market, which is now pricing in less than 20 basis points of rate hikes next year versus over 55 basis points just a few months ago. As we prepare for Fed Chair Powell's remarks, it's not lost on us that we could very well see a "buy the rumor, sell the news" event following the FOMC meeting.