Impeachment shrugged off; indicators suggest growth will continue

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The markets suggest investors won't react to the impeachment of President Trump, while a mixed bag of indicators say the economy will continue growing at a moderate pace.

“Markets should not see much of a reaction with the President’s impeachment saga, as it is unlikely for the Democrats to get two-thirds of the vote in the Senate to convict Trump,” said Edward Moya, senior market analyst, New York at OANDA. The House on Wednesday impeached the president for abuse of power and obstruction of Congress over Trump's alleged efforts to get Ukraine to announce investigations into his political opponents.

During President Bill Clinton’s 5-month impeachment process, which finished in February of 1999, “the S&P 500 index gained over 26%,” Moya added. Those gains resulted from “the dotcom bubble, while Trump has his based on massive stimulus from central banks globally.”

While stocks should have “another banner year” in 2020, don’t be surprised by “a modest 2-3% pullback over the last couple weeks" of 2019, he said.

Data
The Leading Economic Index was flat in November, after falling 0.2% each in October and September, while the coincident index gained 0.4% after dipping 0.1% in October and rising 0.1% in September. The lagging index jumped 0.5% in November after gaining 0.2% in October and 0.1% in September.

“Strength in residential construction, financial markets, and consumers’ outlook offset weakness in manufacturing and labor markets,” according to Ataman Ozyildirim, senior director of economic research at the think tank. “While the six-month growth rate of the LEI remains slightly negative, the index suggests that economic growth is likely to stabilize around 2 percent in 2020.”

Economists polled by IFR Markets expected LEI to gain 0.1%.

Philly Fed
Manufacturing activity in the mid-Atlantic region was slower than expected in December, with the Federal Reserve Bank of Philadelphia’s business activity index slumping to 0.3 from 10.4 in November.

Economists predicted the index would slide to 8.0.

Home sales
Existing home sales declined to a 5.35 million pace in November from the 5.44 million pace a month earlier, the National Association of Realtors said. Despite the 1.7% decrease in the months, sales were 2.7% higher than the 5.21 million rate a year ago.

“Sales will be choppy when inventory levels are low, but the economy is otherwise performing very well with more than 2 million job gains in the past year,” said NAR Chief Economist Lawrence Yun, so the one month decline shouldn’t raise concerns.

"Mortgage applications data show that demand is still strong, given the healthy job market and low mortgage rates,” said Mortgage Bankers Association Chief Economist Mike Fratantoni. “The lack of supply continues to be the constraint slowing prospective buyers.”

Current account
The current account deficit narrowed to $124.1 billion in the third quarter from $125.2 billion in the second quarter, the Commerce Department reported. The deficit for the second quarter was first reported as $128.2 billion,

Economists expected a $122.5 billion shortage in the third quarter.

The deficit was the smallest since the second quarter of 2018, and “mainly reflected a reduced deficit on goods and an expanded surplus on primary income,” Commerce said. The deficit represents 2.3% of gross domestic product, down from 2.4% a quarter earlier.

Goods exports and imports both declined.

Jobless claims
Initial jobless claims fell 234,000 on a seasonally adjusted basis in the week ended Dec. 14 from 252,000 a week earlier, according to the Labor Department. The numbers may still be skewed by Thanksgiving falling later this year than most years. Economists forecast a larger drop, to 224,000. Continued claims soared to 1.722 million in the week ended Dec. 7 from 1.671 million a week earlier.

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