Monday saw another (albeit small) market advance -- with a narrow trading range. It was good action for the bulls considering the incremental trade news.
Also, we heard a lot of noise but nothing definitive:
* Breadth was negative -- with around -400 to -450 declining issuers over advancers for the last three hours.
* Retail was again an upside feature -- but price movement was slim. (Macy's (M) , Trade of the Week, was flat)
* FANG looked stronger, save a more than a $16 loss on Alphabet (GOOGL) (which three talking heads pushed today, likely because of its recent strength).
* Banks were mixed.
* Consumer non-durables and selected laggards improved.
* Bond yields were little changed (down 1-2 basis points).
* Oil down 88-cents/barrel and gold was up $3/oz.
* Boeing (BA) had a reversal from a good start in the morning.
* Cyclicals were under some pressure -- led by Caterpillar (CAT) and Fastenal Company (FAST) .
* Some of the weak groups continue to fall as they are now subject to tax-loss selling.

And the beat goes on, the beat goes onDrums keep pounding a rhythm to the brainLa de da de de, la de da de da..
- Sonny and Cher,The Beat Goes On

The market hits an intraday high - even though decliners exceed advancers by about 400 issues.

The hyperbolic financial media got ecstatic that Berkshire Hathaway (BRK.A) (BRK.B) revealed it owned 1.2 million shares of RH  (RH) last week.
Memo to the media: The investment totals under $300 million. Given that diminutive size it is likely a portfolio position that was established by one of Warren's two money managers, Ted or Todd.

From the South China Post on U.S./China trade negotiations.

For those technicians that follow Susan Berge (I have, Susan and her dad Stan, since 1974!) - her numbers indicate that the market continues to climb higher but the internals (her "numbers") are worsening.

"The Tourist is Back!"

Quietly, the DAX is at a two week low:

I continue to add to Twitter (TWTR) on any weakness.
Very large.

We continue to expect a brief pause in the upside despite the rally over the past week. Our four key tactical indicators continue to point to an overbought condition that suggests not chasing the upside. As you know, our larger message highlights buying into any weakness once it develops as we look forward to our 2020 target:

Four reasons we are bullish and offensively positioned into a 2-5% pause in the upside:

1. Folks printing money continue to tell us they will continue an accommodative stance.
2. The corporate market remains open and Bank Lending Standards remain easier in most recent data.
3. There is an inflection in global manufacturing off historically weak levels.
4. Demographic tailwind with the Millennials peak birth year (1990) turning 30 amid solid employment, good confidence, and low rates.

I continue to reiterate our 3350 SPX 2020 target that is front end loaded:

* The story for 2019 was slow growth, easy Fed, and lower U.S. Treasury yields.

* The story for 2020 is economic re-acceleration, a neutral Fed, and marginally higher U.S. Treasury yields.

Summary - The S&P 500 has reached into a level of overbought territory that suggests a period of consolidation and increased volatility may lie directly ahead. That said, our still positive core fundamental thesis, current valuation level, and history of year-end ramps in big years, suggests any weakness should prove limited and temporary (<5%) and provide a more attractive entry point for a move toward our 2020 target of 3,350.

* Four weeks ago I introduced a new column in my Diary
* Rate of change (absolutely and relative to consensus expectations) is likely the most important near-term determinant of stock prices
* On balance, last week's data-based changes (four positive, three neutral and three negative) aremodestly constructive.

These days, change is happening oh so rapidly. It is leading to more of a sense of uncertainty and a heightened regime of volatility.

As a result, I initiated a new column four weeks ago, "What Has Changed at the Margin Over the Past Week," which is meant to assess the changing landscape of the economy, politics, geopolitics, interest rates, inflationary expectations, and, of course, the markets.

This weekly analysis and summary is data-based as I am trying to be objective, interjecting as little subjectivity as possible!

Here is what changed at the margin last week:

1.U.S./China Trade: And the beat goes on. Larry Kudlow says that Phase One is almost complete - "we are coming down to the short strokes." I will give my pal the benefit of the doubt. This is a positive for the markets.

2. The Domestic Economy:

Here are the positives -

The MBA said mortgage applications jumped by almost +10% week over week. Purchases rose +5.1% week over week and up by +15% year over year, while refi's were higher by +13% week over week and +188% year over year. With the help of lower rates and what happened last year in November and December, the comps are easy.
The October NFIB small business optimism index improved by +0.6 pts month over month to 102.4 after falling in the two prior months by a total of 2.9 points. For perspective, this number has averaged 102.9 year to date and the peak in the expansion was 108.8 in August 2018 just as the tariff fight was about to intensify.

The NFIB President is optimistic, "Small business owners are continuing to create jobs, raise wages, and grow their businesses, thanks to tax cuts and deregulation, and nothing is stopping them except for finding qualified workers." With respect to this last point, "Firms are likely to continue to offer improved compensation to attract and retain qualified workers because the only solution in the short term to an employee shortage is to raise compensation to attract new workers and to train less qualified employees." On the impact of tariffs, "30% of small firms reported negative effects from trade policy" and "Making major commitments about production and distribution will be more difficult until import and export prices are stabilized with trade agreements."

Here are the negatives -

We are in both a manufacturing and in an earnings recession. Second, business capital spending has failed to revive. Third, growth is slowing as real U.S. GDP, which rose by +3% in the first quarter of 2019, slowed to a +1.9% gain in the recently completed third quarter. Incorporating the week's economic data into their models, the NY Fed's Nowcast Q4 GDP estimate has fallen to +0.4% from +0.7% last week and +1.9% the week before.

The October Cass Freight index fell -5.9% year over year which is the 11th straight month of year over year declines. Cass Freight repeated what they've said for the past 5 months that "the shipments index has gone from 'warning of a potential slowdown' to 'signaling an economic contraction.'" Here are the 3 main areas of concerns: 1)"We are concerned about the increasingly severe declines in international airfreight volumes (especially in Asia) and the ongoing swoon in railroad volumes, especially in auto and building materials; 2)We see the weakness in spot market pricing for transportation services, especially in trucking, as consistent with and a confirmation of the negative trend in the Cass Shipments Index; 3)As volumes of chemical shipments have lost momentum, our concerns of the global slowdown spreading to the US increase...The trade war looks as if it has reached a 'point of no return' from an economic perspective, as the rates of decline are accelerating." (The underline is theirs).

The ports of Los Angeles and Long Beach said its inbound container loadings fell -14.1% year over year in October. These two ports handle 37% of U..S container import volume.

Initial jobless claims jumped by 14k to 225k and that was a large 10k more than expected. That's also the most since mid June and takes the 4 week average to 217k from 215k, the highest since mid July. Continuing claims, delayed by a week, fell by 10k off the highest since August.

Industrial production in October was weak across the board. The headline figure fell -0.8% month over month, double the estimate of down -0.4% but the manufacturing softness was about as expected with a drop of -0.6% and is down for 3 months in the past 4. Auto production was the biggest reason for the weakness in manufacturing much in part due to the GM (GM) strike. Taking out auto's saw a -0.1% month over month drop in manufacturing. Dragging down the headline figure was a drop in utility output. Mining production fell for the 3rd month in the past 4 as we see what's going on in the oil and gas industry. Capacity utilization fell to 76.7% from 77.5%. That's the lowest since October 2017.

Business inventories in September were flat after a one tenth decline in August, both one tenth less than expected which might lead to a slight tweak lower in Q3 GDP numbers.
This is a market negative.

3. The U.S. Consumer: Core retail sales in October rose +0.3% month over month as expected but September was revised down a slight one tenth. If we take out just autos and gasoline and leave building materials in, the sales picture missed by more. Here sales were up just +0.1% month over month, two tenths light relative to expectations and September was revised down by one tenth. Sales ex auto's and gasoline are dead flat over the past two months which is the slowest two month pace since Q4 2018.

The weekly Bloomberg consumer confidence index for the week ended November 10th has fallen for the 4th straight week and now sits at the lowest level since late January 2019. The 3 components, State of Economy, Personal Finances, and Buying Climate all fell week over week.

The November NY manufacturing index, the 1st November industrial figure out, fell to 2.9 from 4.0. The estimate was 6.0. The internals were mixed. As for the 6 month outlook, it was little changed at 19.4 from 17.1 last month. The 6 month average is 22.1. Positively, capital spending plans on technology and capital equipment rebounded nicely. This is a negative for the markets.

4. Foreign Policy: No change. This is neutral.

5. The Fed: Three weeks ago the Fed cut interest rates by 25 basis points, its third cut in as many meetings. With the third insurance rate cut in, markets hope for a soft landing. There was no change in rate expectations over the last week.
As seen by the continued bazooka's the Fed is firing into the short term repo market and the rather sharp increase in the size of their balance sheet, they still have not gotten full control of things. The effective fed funds rate is now slipping to just 5 bps from the lower end of their target. Overall, a positive for the markets.

6.Brexit: Things still appear stabilized ... for now. This is a slight positive.

7. U.S. Politics: Impeachment hearings got heated. This week will be more telling. It is likely the Senate will vote on impeachment. It is also likely that it will be defeated. Overall no change in expectations. This is likely a neutral for the markets.

8. Corporate Profits: Net, net, the rate of "beats" moderated in the last week. There were a number of high profile disappointments. This is a negative for the markets.

9. The U.S. Stock Market: Up about by another 1% on the week. The S&P 500/Nasdaq/Wilshire 5000 hit new all-time highs. A positive for the markets.

10. Overseas Economies 

On the positive side of the ledger:

The German economy in Q3 was up +0.1% quarter over quarter, two tenths better than expected but Q2 was revised lower by one tenth to a decline of -0.2%. Either way, its economy has basically flat lined over the past two quarters with manufacturing weakness offset by a better services side, particularly with consumer spending as the jobs market is still good with unemployment low.
The German ZEW index improved to -2.1 from -22.8 and that was better than the estimate of -13. Current Conditions though were little changed at -24.7 vs -25.3 in October. The estimate was -22.3. The ZEW said, "There is growing hope that the international economic policy environment will improve in the near future.. In the meantime, the chances for a agreement between Great Britain and the EU and thus for a regulated withdrawal of Great Britain have noticeably increased. Punitive tariffs on car imports from the EU to the US are also less likely than the projections a few weeks ago. An agreement in the trade conflict between the US and China is appearing more likely too."

The Eurozone October CPI figure was left unrevised with a headline gain of +0.7% year over year and core rate of up +1.1%.
September industrial production in the EU rose +0.1% month over month, 3 tenths better than expected. It still fell though -1.7% year over year, the 11th month in a row of declines.
In the UK for the 3 months ended September, 58k jobs were lost after a drop of 56k in the prior month but not as bad as the forecast of a decline of 102k. The unemployment rate did tick down by one tenth to 3.8% which is still near the lowest since the 1970's. Earnings growth was still good ex bonus' but slowed to a +3.6% year over year increase from +3.8% in the prior month.
Indonesia said its October exports fell by -6.1%, better than the estimate of down -8.2%. but still lower for the 12th straight month year over year. Imports plunged by -16.4% vs the forecast of down -15.4% in part to a drop in oil and gas imports but outside of that they were weak as well. Here are the negatives:

China said its October retail sales, industrial production and fixed asset investment numbers were all below expectations. The retail sales figure grew at +7.2% year over year, matching the slowest pace since 2003. The industrial production increase of +4.7% was the 2nd slowest since 2002. Fixed asset investment is running at the slowest pace since 1998.
Loan growth in October in China slowed to a pace well below expectations. Aggregate financing totaled 619 billion yuan vs the estimate of 950 billion with bank lending making up 661 billion yuan of this vs. the forecast of 800 billion. Thus, the shadow side saw an outright decline in credit extension. Total lending is down -16%. October typically sees a decline relative to other months of the year because of a holiday but this was certainly more so than expected. Non financial business borrowing was the least since August 2016.
The Hong Kong situation continues to deteriorate. 3 month HIBOR has now rise for the 7th straight day to the highest level since mid July. Australia, a China growth proxy, said its October jobs number showed an unexpected decline of 19k vs the estimate of up 15k. The unemployment rate ticked up by one tenth to 5.3%.
When taking the Q2 revisions into account, the Japanese economy in Q3 was about as expected but slowed to a pace of just +0.2% annualized, the slowest since Q3 2018. Japan's core machinery orders in September, a very volatile figure month to month, fell -2.9%, worse than the estimate of up +0.9% and follows a -2.4% drop in August. This is now the 3rd straight month of declines to close Q3.
France said its unemployment rose to 8.6% in Q3, up one tenth from Q2 and that was worse than the estimate of 8.4% as the number of unemployed rose.
UK retail sales in October ex auto fuel fell -0.3% instead of rising by +0.2% as expected. UK jobless claims in October rose to 33k, the most since March 2017. While two Bank of England members voted to cut rates from the already low rate of .75%, October core CPI printed 1.7% as expected and holding at a 3 month high.
The UK economy in Q3 grew by 1% year over year, one tenth less than expected, down from a +1.3% pace in Q2 and is the slowest rate of gain since Q1 2010. Versus Q2, growth was +0.3% vs the estimate of +0.4%. Consumer spending was good but offset by weakness in capital spending and inventories.
As a tell on the global IT spending outlook as I consider them a global bellwether, Cisco  (CSCO) CEO Chuck Robbins said in its earnings conference call: "Just go around the world and you see what's happening in Hong Kong, you look at China, what's happening in DC, you've got Brexit, uncertainty in Latin America. Business confidence suffers when there's a lack of clarity and there's been a lack of clarity for so long that it's finally come into play."
Let's call this having a neutral impact.
Bottom Line

Rational people think at the margin.
It has been my experience that rate of change (absolutely and relative to expectations) is likely the most important near-term determinant of stock prices.
On balance, last week's data-based changes (four positive, three neutral and three negatives) are slightly constructive.
These short-term weekly changes should be also viewed in the context of one's intermediate-to longer-term outlook and relative to one's risk profile/appetite and time frames.

My tongue in cheek comments in Randy Forsyth's "Up and Down Wall Street" column in Barron's over the weekend:

Stop me if you've heard this before. The major stock market indexes rose to records again this past week against a backdrop of domestic political fights and global geopolitical tensions. It almost appears as if the equity market resides in a separate universe.

The irrepressible and reliably bearish Doug Kass, who runs Seabreeze Partners Management, suggests (with tongue firmly in cheek) that there is some outside force at work that continues to lift stocks ever higher. As the industrials topped 28,000 on Friday, talk of the Dow Jones Industrial Average at 30,000 didn't seem so fanciful as when ...

With the rally to new highs in the S&P 500, the price to sales ratio in this index is now exactly where it was in early 2000. It's only one valuation metric which takes out the games (GAAP v. Non GAAP) that are played with earnings. It also means nothing for stock market performance in the short term and thus is just a perspective check more than anything.
Here is the chart of the Price to Sales ratio of the S&P 500 Index:

A few weeks ago I moved my only retail position, Macy's (M) , from medium sized to a large sized position - partly due to fundamentals (they stink but appear to have stabilized) and improving technicals.
As well, the company's large (asset value of about $25/share) real estate holdings protect shareholders somewhat from the disruption that continues in the real estate space.
And, so does the company's outsized dividend yield (though still vulnerable to a cut) protect shareholders from the downside.I recently highlighted the retail sector and Macy's in "TheThanksgiving Parade Might Come Early This Year":
Macy's (M) , the object of my recent affection, picked up a bid (along with retail) and is trading +5%.The rotation into retail is impressive considering the flat market. Note the bounce off 200-day moving average (arrows).Perfect backtest?

The market move lower on CNBC's Eunice Yoon tweet:

"Mood in Beijing about #trade deal is pessimistic, government source tells me. #China troubled after Trump said no tariff rollback. (China thought both had agreed in principle.) Strategy now to talk but wait due to impeachment, US election. Also prioritize China economic support."

Peter Boockvar on the Fed's balance sheet:

I'm going to start the week by talking about the Fed's balance sheet which has rocketed in size due to their purchases of T-bills. Whether it should be considered QE4 or not, in the eyes of the market it's just semantics. Markets view any increase in the size of the Fed's balance sheet as QE and the $250b increase in just two months is no doubt helping to lift stock prices. Now pre crisis the Fed's balance sheet rose each and every year at about the pace of nominal GDP via open market purchases and currency in circulation but after the massive QE that has been brought to the world over the past 10 years, markets don't differentiate. The Fed we know is trying to quell the uprising in the repo markets via open market purchases but they should also understand the default reaction on the part of the market in the post crisis era of central bank activism. Separately the rate cuts are still meant to generate higher inflation and to stabilize growth and to this I'll quote Citi's comments from last week which is something I've been saying for years now, "central banks' inability to create inflation has caused them to underestimate the extent to which they are driving up asset prices. Yet this misunderstanding makes them all the more likely to carry on."

FED's BALANCE SHEET

On Friday the Fed released its financial stability report and we can be sure the advice given won't be heeded as Jay Powell has already told us. When asked what the Fed will do in the next economic downturn he just repeated the conventional thinking of using zero rate policy and QE. The same policy that brought has no higher than 2% growth in the US and we saw what's occurred in Japan and Europe after many years of trying. No outside the box thinking on the part of Jay Powell. In this report it said "If interest rates were to remain low for a prolonged period, the profitability of banks, insurers, and other financial intermediaries could come under stress and spur reach for yield behavior, thereby increasing the vulnerability of the financial sector to subsequent shocks." Amen but will it be eventually heeded? Unlikely as stated.

The continued disturbing situation in Hong Kong did not disrupt markets there overnight as the Hang Seng rallied by 1.4% and Chinese stocks were up as well. We heard the word 'constructive' again over the weekend from the Chinese side when describing the call that the two sides had on Saturday. From the perspective of markets, who needs a deal when instead we can hear about 'constructive' talks everyday. European markets instead are mostly down but modestly.

The key hope of course on a trade deal is the roll back of the September tariffs, no implementation of the December ones and a timeline on eliminating the existing tariffs. An economic rebound in manufacturing, trade and capital spending in response is then widely anticipated which it should but with the degree being the question. Watching the 10 yr US Treasury yield is now ever more important at least when trying to gauge its opinion from here on economic growth.

The British pound is stronger today as it's becoming more apparent that Boris Johnson will win next month in resounding fashion and a Brexit deal should soon follow. I remain positive on the pound and British stocks denominated in pounds.

--Electric cars.--The SEC is about to let celebrities endorse money management firms. What could go wrong? --What Americans think about pot legalization.

Danielle DiMartino Booth on retail:

• September 2019 was the seventh quarter that the building materials sales-to-inventory ratio was negative, aligning with 2007's fourth quarter as the U.S. economy entered recession; falling home prices triggered the 2007 stretch, a parallel with today's waning home price growth
• Unlike in 2007, when management delayed headcount reductions, management at building material retailers today are actively reducing headcount; for the last three quarters, the building materials retailer worker/managers spread has been negative
• Over 60% of postwar recessions featured expanding consumption; hopes are running high that the Fed's rate cuts feed-through to housing will manifest in improved top-line growth at Home Depot (HD) and Lowe's (LOW) , both of which report this week

Much to their parents' delight, little kids have a monopoly on the holidays. Whether it's a retro toy kitchen, a complete junior drum set or that first Razor, presents take up lots of room and thrill their recipients with their sheer bulk. Parents learn quickly that age is the ultimate budgetary enemy. It begins with the $500 Xbox and its various accoutrements, ranging from the $40 charging stand to the $700 Next Level Racing GTultimate V2 Simulator Cockpit. As with Dante's nine circles of Hell, parents eventually descend to the depths wherein their offspring are converted into iChildren whose dreams of sugar plum fairies have been displaced by the $1,459 iPhone 11 Pro Max.

With luck, a hand-me-down older version will do, and the kids can embrace the season of giving by doing just that -- giving rather than receiving. A trip to the closest Home Depot or Lowe's to shop for Dad for that drill or screwdriver set he's been eyeing would do the trick of lifting teens' spirits. "Good luck with that," you're derisively thinking. You wouldn't be alone.

The bean counters at the Commerce Department join in your skepticism. In fact, they don't even qualify sales at Building Materials stores as part of the Control Group that feeds GDP consumption.

QI's Dr. Gates is appropriately irreverent: "You can't make this stuff up. Building material sales are not part of consumer spending and Home Depot and Lowe's are not retailers. Yeah, right! So there's nothing to see here, a big nothing-burger from the looks of the healthy Control Group retail sales trend."

He's got a point. To look at the red line above, you'd have to agree with the talking heads meme that "the consumer is strong." That same red line encourages market watchers to disregard the message emitting from the mega-retailers in the building materials space.

The green line above cautions against such insouciance. Historical context is key. In mid-2006, Control Group sales were expanding at a robust 5.6% rate, down a bit from the cycle's high point of 6.4% reached in that year's first quarter, when (no coincidence) the most magnificent run-up in home prices in U.S. history ended.

What followed was the greatest crash in global real estate markets in modern history that stretched through 2012's first quarter. The bursting of the housing bubble may have been an impossibility to then Fed Chair Ben Bernanke, who was busily assuring the masses that the economic damage would be "contained."

Homeowners knew perfectly well what was going on, slicing sales at building materials stores in half in the space of three months, from a 13.2% rate of growth in 2006's first quarter to a 5.7% pace in the second quarter. In recent quarters, revenue growth at building material retailers has suffered as home price appreciation slowed for 15 consecutive months before beginning to reverse course in August.

The unwanted build-up in inventories was instantaneous, sending the difference between sales and inventory growth tumbling into the red. This imbalance persisted for 14 straight quarters. Curiously, building materials retailers absorbed the cost hit for nearly three years before layoffs began in earnest as gauged by measuring the spread between worker and manager ranks (the blue line).

Enough with the history lesson, already? Almost. We refer you to the last time the negative building materials sales-to-inventory spread hit the seven-quarter mark -- 2007's fourth quarter as the U.S. economy entered recession. With that, the September 2019 quarter-closing data on this series placed the current run in the red at the...seven-quarter mark. The last time the supply/demand imbalance was as protracted as it is today, the U.S. economy was contracting.

As for management, it's not waiting to see the whites of the recession's eyes to reduce headcount. September marked the third quarter running of the building materials retailer worker/manager spread being negative, a.k.a. managers writing pink slips.

We should also note that Control Group retail sales were running at 4.0% when the economy last entered recession in late 2007 and would not turn negative until 2008's fourth quarter despite the economy's having been in contraction for a year. For the record, that compares to today's 4.8% pace. Recall what we've written in the past, that 63% of postwar recessions have featured expanding consumption.

It's no mystery that the rate cuts' purpose was reversing housing's weakness that's dragged on Home Depot and Lowe's revenues. Ahead of their earnings reports this week, analysts are citing the rebound in housing activity as reason for optimism on top-line growth. We can't argue with the logic -- building material retail sales improved from -0.9% in the second quarter to -0.1% in the quarter ended September. And, of course, the holidays and buying dad his dream drill are right around the corner.