The case for more stock market records

Just three months ago, the escalating US-China trade war and a troubling signal in the US bond market induced a global panic, sparking a selloff in stocks and, for the first time in a decade, resurfacing the dreaded r-word: recession.

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Just three months ago, the escalating US-China trade war and a troubling signal in the US bond market induced a global panic, sparking a selloff in stocks and, for the first time in a decade, resurfacing the dreaded r-word: recession.

Now, investors around the world are shrugging off their concerns. Sentiment is improving — allowing markets to continue pushing higher and higher. US stock indexes hit all-time highs again on Friday, with the Dow climbing above 28,000 points for the first time in history.

See here: "Recession concerns vanish" was the takeaway from Bank of America Merrill Lynch's most recent survey of fund managers. Expectations for global growth in the next 12 months had their biggest leap ever between the October and November.

Investors are sitting on less cash while boosting their exposure to global stocks, Bank of America notes. Michael Hartnett, the chief investment strategist, describes what's happening as FOMO, or "fear of missing out."

Case in point: One month ago, CNN Business' Fear and Greed Index had a "neutral" reading. Now it's pulling up "extreme greed."

But a jump in FOMO doesn't mean the risks that investors had been worried about have evaporated. Capital Economics on Friday outlined four reasons to stay alert:

  1. The recent truce between the United States and China could reverse.
  2. The Fed might not fulfill investors' expectations of more easing in 2020.
  3. The US economy could head south.
  4. The US election could gin up a surprise.

The trade situation is particularly precarious. Moody's pointed out in its recent two-year outlook that it's not clear an agreement can be reached to roll back existing tariffs, which are weighing on growth. Plus, tech restrictions on Chinese companies like Huawei are likely to remain in place regardless, "perpetuating an ongoing source of friction."

Brexit uncertainty will also drag into next year, the ratings agency observed. Germany and the United Kingdom both dodged a recession in the third quarter, but they're not out of danger yet.

For now, though, traders don't want to be left on the sidelines.

The view taking hold: "We see no economic reason for a recession in the advanced world in the next two years," Berenberg economists said in a note to clients Friday, noting that economic and financial indicators are "flashing amber instead of red."

"Unless political risks begin to mount again, trade and manufacturing should recover gradually over the course of 2020."

Retailers show their cards ahead of the holidays

Here's a dispatch from my CNN Business colleague Nathaniel Meyersohn on the retail beat:

Top retailers deliver will third quarter earnings this week. Wall Street will be watching closely for clues about US consumers and the health of the battered retail sector heading into the holiday shopping stretch.

Among the big names reporting results: Target, Kohl's, Macy's, Nordstrom, Home Depot, Lowe's, Gap and Victoria's Secret parent L Brands.

Target has been one of the hottest stocks of 2019, surging close to 70%. But department stores and legacy brands such Gap have weakened. Macy's shares have lost nearly 45% this year.

Walmart on Thursday set a high bar for its rivals. Walmart's sales at stores open at least a year grew 3.2% last quarter, including a 41% rise in online sales.

"We're prepared for a good holiday season," Walmart CEO Doug McMillon said.

Up next

Monday: US international Treasury purchase data

Tuesday: US housing starts and building permits; Home Depot, Kohl's, TJX and Urban Outfitters earnings

Wednesday: Fed minutes; Lowe's, Target and L Brands earnings

Thursday: US existing home sales; Macy's, Gap, Nordstrom, Ross Stores, Williams-Sonoma earnings

Friday: German manufacturing data; University of Michigan consumer sentiment survey; Foot Locker and J.M. Smucker earnings

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