THE TICKER

Federal Reserve Chairman Jay Powell recently suggested that economic conditions may be “too good to be true.” A new report from Goldman Sachs suggests he was on to something. 

The bank is projecting economic growth will slow “significantly” in the second half of 2019 as the twin jolts from tax cuts and a bump in federal spending fade while the Fed continues raising interest rates. More precisely, it expects this year’s heady pace of 3 percent-plus growth will sink to 1.75 percent by the end of next year. 

The picture Goldman paints isn’t entirely gloomy. Indeed, the bank expects the Fed will keep hiking interest rates in part to keep a humming expansion from overheating.. The report, which Goldman sent to clients on Sunday but isn't publicly available, predicts the unemployment rate will continue to drop, falling to 3 percent by 2020, while wage growth edges up as high as 3.5 percent. And it sees no disaster lurking: “The expansion is on course to become the longest in US history next year, and even in subsequent years recession is not our base case.”

That places Goldman on the sunnier side of the Wall Street consensus: More than a third of top forecasters believe the U.S. economy will enter a recession in 2020; and a new Reuters poll of economists found they think the probability of a recession in the next two years is rising, to a median 35 percent. (The Fed projects GDP will slow to 2.5 percent next year, a 2 percent in 2020, before slipping to 1.8 percent in the longer run.)

Such a slowdown could have dramatic political repercussions for the Trump administration and the broader Republican Party, which remain invested in a roaring economy offering an effective argument heading into the 2020 election. That proved a losing bet in the midterms, in which House Democrats scored their biggest midterm pickups since the post-Watergate election of 1974. More troubling for the GOP, the Democrats’ performance was arguably the best in history for an out-of-power party amid such strong economic conditions. If the economy hits a skid, Republican losses in the next election could get even worse.

Despite the projections, top Trump economic adviser Larry Kudlow says business investment unleashed by the tax cuts will sustain the pace of growth. “This economic boom is great. I personally believe it’s going to continue for quite some time,” he recently told Politico. “If we don’t get the capital expenditures, I’ll be wrong. But I think we will.” Business investment underwhelmed in the third quarter; Goldman says it will be solid if unremarkable for the next few years. 

And there are plenty of other risks that could menace the expansion — including a misstep by monetary policymakers, as Scott Minerd of Guggenheim Partners argues: 

Or, as former Fed chair Janet Yellen, Sen. Elizabeth Warren (D-Mass.) and others are warning, a meltdown from the pileup of risky corporate debt could knock things sideways. Or the trade war could spin out of control. Or some array of threats could add up to one nasty drag:

Some investors think the stock market is indicating the slowdown is already knocking. Morgan Stanley equity strategist Michael Wilson, in a Monday note, declared an end to the bull market. “While 2018 is clearly not a year of recession, the market is speaking loudly that bad news is coming,” he wrote, per CNN’s Matt Egan. That call came as a selloff among tech stocks dragged the market lower, deepening its weeks-long slump. 

Programming note: We’re publishing an abbreviated version of the newsletter through Wednesday this week and then will be dark on Thursday and Friday in observance of Thanksgiving. We’ll be back to our normal offering and frequency starting Monday.

MARKET MOVERS

Tech wreck continues, spreads stock market pain. WSJ's Riva Gold and Akane Otani: "The day’s declines were accompanied by a broad retreat from risk across financial markets. Bitcoin prices crashed below $5,000 for the first time this year, and Google parent Alphabet Inc. closed in bear market territory: a drop of at least 20% from a recent high. Stocks have suffered a series of pullbacks this fall that have chipped away at much of their 2018 gains.

"Downbeat forecasts from former market leaders such as Apple Inc. and Facebook Inc. have raised questions over whether the past year’s gains can be justified. Adding to those worries, investors are already expecting a broader slowdown in corporate earnings growth as rising rates and a stronger dollar take a greater toll on profits... The Dow Jones Industrial Average ended the day down 395.78 points, or 1.6%, to 25017.44 after tumbling more than 500 points earlier. The S&P 500 fell 45.54 points, or 1.7%, to 2690.73 and the tech-heavy Nasdaq Composite lost 219.40 points, or 3%, to 7028.48."

$1 trillion gone. The FAANG stocks — Facebook, Amazon, Apple, Netflix and Google-parent Alphabet — have collectively seen nearly $1 trillion erased from their market cap since hitting their highs, CNBC notes. Futures are pointing to more turbulence today. 

The prime minister found a more receptive audience among business leaders than any others she has faced since unveiling her draft Brexit deal.
NYT
Like 80 years ago, financial markets are in the late stages of this short-term business cycle, given that the Federal Reserve is tightening monetary policy as U.S. equity prices reach record highs, Dalio said.
Bloomberg
TRUMP TRACKER

TRADE FLY-AROUND: 

Trump administration eyes tech exports limits. The Post's Tony Romm: " Amazon, Apple, Google, IBM and their peers could be subject to new restrictions on how they export the technology behind voice-activated smartphones, self-driving cars and speedy supercomputers to China under a proposal floated Monday by the Trump administration. For the U.S. government, its pursuit of new regulations marks a heightened effort to ensure that emerging technologies, including artificial intelligence, don’t fall into the hands of countries or actors that might pose a national security threat.

"The official request for public comment, published in the Federal Register, asks whether a long list of AI tools should be subject to stricter export-control rules. The Trump administration’s potential targets include image-recognition software, ultrafast quantum computers, advanced computer chips, self-driving cars and robots. Companies that make those products and services, for instance, might have to obtain licenses before selling them to foreign governments or partnering with some researchers in certain countries."

U.S. companies in no hurry to leave China. CNBC's Evelyn Chang: "U.S. companies aren't leaving China in a big way yet, despite escalating trade tensions between the two economic powerhouses, analysts said. 'A lot of companies are talking about making changes, but (are) not actively making changes,' said Chris Rogers, research analyst at Panjiva, a supply chain data company that's part of S&P Global Market Intelligence. 'Nobody's going to make any changes until they see how this summit goes between President Trump and President Xi," he said referring to their upcoming meeting at the G-20 summit in Buenos Aires, Argentina on Nov. 30 and Dec. 1."

China approves Disney purchase of Fox. NYT's Brooks Barnes: "Disney is still awaiting regulatory approval from a handful of countries, which a spokeswoman declined to identify. But none are as important as China — a crucial growth market for Disney, given its swelling middle class. Furthermore, analysts had worried that the Disney deal could become collateral damage in the trade war, as China was looking for ways to retaliate against the United States."

President Trump’s trade war with China is having a major impact on agricultural industries, but most notably on U.S. soybean exports.
Yahoo Finance
Business
The program aimed at helping farmers affected by the trade war with China is aiding some big-city dwellers as well.
Jeff Stein

MELTDOWN WATCH: 

POCKET CHANGE

Ghosn ouster could threaten Renault-Nissan-Mitsubishi alliance. WSJ's Stephen Wilmot: "The arrest of Carlos Ghosn does more than bring down one of the titans of the auto industry. It effectively dashes hopes that the Renault -Nissan-Mitsubishi Alliance that he created could be merged into a conventional car company. Investors who have been waiting for the deal suffered big losses Monday, while those who have opposed it—largely on political grounds—likely rejoiced that the three companies’ independence looks to be secure for now. The outstanding question is whether the status quo can be maintained without the alliance’s chief architect."

A nail in globalization. Fortune president Alan Murray, in his morning note, calls Ghosn's demise another knock on the post-World War II order: "He in some ways represented its pinnacle—a Lebanese-born Brazilian who came to run three different global companies all at once: Renault in France, Nissan and Mitsubishi in Japan. When he first assumed the joint-CEO position, many thought he was a harbinger of a new, cross-cultural business future. But now he marks that future’s demise. With Ghosn gone, Japanese business has returned once again to its insular ways. And much of the world is heading in a similar direction."

Cramer: Facebook stock would rise if it dumped Sandberg. CNBC: "Cramer was discussing a new report in The Wall Street Journal, which described Facebook Chairman and CEO Mark Zuckerberg as causing 'unprecedented turmoil' at the social network amid scrutiny over its Cambridge Analytica scandal and subsequent public disclosures... On CNBC Monday, Cramer said Facebook ‘is obviously’ in disarray. ‘Does anyone say it's humming?’ the ‘Mad Money’ host asked. ‘They can't get a hold of the narrative. It's bad.’”

D.C. offered up to $1 billion for HQ2. The Post's Jonathan O'Connell: "The District offered Amazon.com up to $1 billion in tax incentives to open a second headquarters with 50,000 jobs in D.C., probably the largest subsidy ever offered by the city to a single employer but also far less than other jurisdictions agreed to provide to the tech giant. The package, released Monday by Mayor Muriel E. Bowser (D), offered a combination of discounts on property, sales and corporate franchise taxes over a 15-year period as outlined in a law aimed at luring tech jobs to the city. Bowser’s office estimated the package’s value at between $488 million and $1.053 billion, depending on the number of jobs Amazon would have created, how many were filled by District residents, how much office space the company occupied and other factors. (Amazon’s chief executive, Jeffrey P. Bezos, owns The Washington Post.)"

Business
Virgin Galactic’s 14-year quest to create the “world’s first commercial spaceline” has been deadly and expensive.
Christian Davenport, Whitney Shefte, Courtney Kan and Thomas Simonetti
The Switch
Apple CEO Tim Cook used his time on HBO to distance himself from tech giants like Google and Facebook.
Brian Fung
MONEY ON THE HILL

16 Dems say they'll oppose Pelosi. The Post's Mike DeBonis and Bob Costa: "Sixteen Democrats said Monday that they will oppose Rep. Nancy Pelosi’s bid for House speaker, an act of defiance that puts the dissidents on the cusp of forcing a seismic leadership shake-up as the party prepares to take the majority.

"Their pledge to oppose Pelosi, delivered in a letter to Democratic colleagues, comes as the California congresswoman has marshaled a legion of supporters to make her case. She is courting members in one-on-one conversations while securing the backing of allies on and off Capitol Hill... The insurrection against Pelosi stands as the only official obstacle to unity in the top leadership ranks, after Rep. Diana DeGette (D-Colo.) on Monday withdrew her challenge for the No. 3 job held by Rep. James E. Clyburn (D-S.C.), and Pelosi endorsed her leadership team. But the renegades’ threat is considerable."

SALT increase hurt Republicans. NYT's Ben Casselman: "Trump’s $1.5 trillion tax cut was supposed to be a big selling point for congressional Republicans in the midterm elections. Instead, it appears to have done more to hurt than help Republicans in high-tax districts across California, New Jersey, Virginia and other states.

"House Republicans suffered heavy Election Day losses in districts where large concentrations of taxpayers claim a popular tax break — the state and local tax deduction — which the law capped at $10,000 per household. The new limit resulted in an effective tax increase for high-earning residents of high-tax states who claim more than $10,000 per year in SALT.

"Democrats swept four Republican-held districts in Orange County, Calif., where at least 40 percent of taxpayers claim the SALT tax break, defeating a pair of Republican incumbents and winning seats vacated by Representatives Ed Royce and Darrell Issa. Those districts include longtime Republican strongholds, like Newport Beach, and rank among the country’s largest users of the state and local tax break."

THE REGULATORS

Quarles to lead Financial Stability Board. WSJ's Ryan Tracy: "A top Federal Reserve official is poised to lead a global body overseeing financial regulations, according to people familiar with the matter, overcoming questions abroad about President Trump’s posture toward international institutions. Randal Quarles, the Fed’s vice chairman for bank supervision, is expected to be named to chair the Financial Stability Board, these people said. The decision won’t be final until it is announced. An FSB spokesman declined to comment but said an announcement would be made before Dec. 1, when Bank of England Gov. Mark Carney’s term as FSB chair expires. The decision would be a win for the Trump administration, which had backed Mr. Quarles and viewed his candidacy as a chance to influence the direction of global financial regulatory policy."

BULL SESSION