December FOMC Meeting and Q418 Corporate Earnings

The stock market has a chance to stabilize into early January if this week's FOMC Meeting's results are viewed as market friendly (see below).  The market still will have to contend with concerns about US and global economic growth, headlines regarding US/China trade negotiations, Democratic attacks on Trump, possible government shutdown, and a slowdown in Q418 corporate earnings.   So, any rally after the Meeting may be modest and uneven.

FOMC Meeting
This week's FOMC Meeting probably needs the following results to help stabilize the stock market near term:

1.  Hike the funds rate by 25 BPs, signaling officials still see solid economic growth.

2.  Lower their estimate of the neutral funds rate, citing increased downside economic risks.

3.  Cut the projected number of hikes to 2 from 3 in 2019.

4.  Project no hikes in 2020 or 2021, implicitly consistent with a 3.0% neutral funds rate.

5.  Make no significant change to the economic forecasts laid out in the Fed's Central Tendencies, suggesting still good growth is expected despite the increased downside risks.

If these results do not come out of the Meeting, the market reaction may very well be negative.

Q318 Corporate Earnings
Corporate earnings (mostly due in January) should slow in Q418 from the huge 28.3% y/y gain seen in Q318.   Consensus looks for a slowdown to a still strong 16.9%.  Domestic fundamentals softened for the most part in the quarter.  Oil earnings should have slowed, as did oil prices.  And, domestic profit margins should have contracted somewhat, as prices (measured by the Core CPI) did not climb with Average Hourly Earnings.   Moreover, earnings from abroad likely weakened, because of the stronger dollar and softer economic activity.   However, US Real GDP Growth on a y/y basis was steady at 3.2%, incorporating the 3.0% q/q Atlanta Fed model estimate for Q418.  

                                                                                                                                          Markit
                                                                                                                                          Eurozone              Real GDP     Oil Prices        Trade-Weighted Dollar    AHE     Core CPI    PMI  
                [                                y/y percent change                                                   ]    (level)
Q117            2.0                +65.3                  2.3                              2.7          2.2                55.6
Q217            2.2                +13.1                  3.1                              2.5          1.8                56.8
Q317            2.3                 +6.0                 -1.9                              2.5           1.7               57.4
Q417            2.5               +12.7                 -4.1                              2.5           1.7               59.7

Q118            2.8               +21.5                 -6.6                              2.7           1.9               59.1
Q218            2.9               +41.0                 -1.8                              2.7           2.2               55.9
Q318            3.2               +45.4                 +5.1                             2.8           2.2               54.3
Q418            3.2                 +7.6                 +6.4                             3.0           2.2               51.7