The small-cap premium is one of the oldest return anomalies (or risk factors, if you’re so inclined) identified in the research literature. But after decades of analysis and mixed results, the idea that small company shares will outperform large caps also draws plenty of skepticism.
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● Spending Bill Hits Snags, but Congress Thinks It Can Avoid Shutdown | NY Times
● U.S. budget deficit shrinks in November | MarketWatch
● U.S. mortgage applications rise in latest week: MBA | Reuters
● German inflation rate confirmed at 4 1/2-year low in Nov | FT
● Italy Oct industry output falls, disappointing recovery hopes | Reuters
● Investors Sell Stocks as Oil Prices Keep Falling | WSJ
● France Nov Inflation Falls Back To Lowest Level Since 2009 | MNI

US retail sales are expected to rise 0.2% in tomorrow’s November report vs. the previous month, according to The Capital Spectator’s median point forecast for several econometric estimates. The median prediction reflects a slight deceleration in growth vs. the previous month’s 0.3% advance.
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● Job Openings Point to Sustained US Payroll Gains | Bloomberg
● Small-business owners show most optimism since 2007, survey finds | LA Times
● Long End Of The US Yield Curve Flattest Since Jan 2009 | GaveKal
● French Oct Industrial Output Falls Unexpectedly | RTT
● BoE’s Carney says UK rates will rise despite inflation dip | Reuters
● China’s falling inflation raises prospect of faster easing | Reuters

If there’s any illness for which people offer many remedies, you may be sure that particular illness is incurable…
— Anton Checkov, The Cherry Orchard

New products aren’t typically about the business of investing. They are about getting people to buy and sell things. There are very few companies that focus on the long-term business of investing… The best thing you can do for yourself is to make your choice [of a long-term strategy], keep it simple and stick with it. When presented with all these new products, it’s caveat emptor.
— Jack Bogle, Q&A with Bloomberg

Last week’s surprisingly strong gain in November payrolls may be a sign that the US economy is improving, but you wouldn’t know it by looking at the Treasury market. Or would you? Actually, much depends on which portion of the yield curve you’re gazing at. The 2-year yield has popped higher since Friday’s bullish payrolls data, which is what you’d expect for this maturity — typically the most sensitive slice of the curve when it comes to rate expectations. But the analysis is complicated by tumbling inflation expectations.
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● Congress races to reach spending deal before shutdown deadline | MSNBC
● UK industrial production unexpectedly slips in October | MarketWatch
● German Exports Drop Modestly; Imports Fall Most Since 2012 | RTT
● Brent crude oil hits five-year low below $66 on oversupply | Reuters
● Cheap Oil Also Means Cheaper Commodities Amid Surpluses | Bloomberg
● China’s stock mania decouples from economic reality | Telegraph

The great divide between health care and energy in US equities rolls on. Health care shares continue to dominate the recent rally in the US stock market while energy firms remain conspicuous laggards, based on one-year returns. In fact, energy is the only sector currently posting a loss for the trailing 252-trading-day period, according to a representative set of ETFs through Friday (Dec. 5). Positive momentum certainly favors the health sector lately, and it wouldn’t be surprising to see it persist in the near term. But it’s also reasonable to wonder if recent events are laying the foundation for a profitable reversion-to-the-mean trade in the energy patch at some point.
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The US economic trend remains positive and stable after recovering from October’s sharp but brief stumble, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +8.5% on Friday (Dec. 5). The index is near the level that prevailed just ahead of its mid-October tumble. The benchmark’s persistence above zero lately suggests that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated; readings above 0% imply that the economy will expand in the near-term future.
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● German Industrial Output Rises In Oct as Economy Recovers | Bloomberg
● Eurozone Sentix Investor Confidence Improves In December | RTT
● Japan’s Q3 GDP shrinks more than initially reported | MarketWatch
● US Gasoline Prices Have Hit a 4-Year Low | Time
● Emerging Currencies Decline to Decade-Low as China Shares Rally | BusinessWeek
● China’s November imports fall unexpectedly, export growth eases | Reuters
● Bank of France Keeps Q4 French GDP Growth Forecast at 0.1% | MNI