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Private payrolls, American Eagle — What you need to know in markets on Wednesday

Myles Udland
Markets Reporter

As markets move closer to Friday’s all-important jobs report, investors will get the second-biggest piece of labor market news on Wednesday.

At 8:15 a.m. ET, data provider ADP will release its November reading private payroll growth which is expected to show 190,000 jobs were added to the private sector during the month.

On the earnings side, headlines on Wednesday should come from Broadcom (AVGO) and apparel retailer American Eagle (AEO).

American Eagle earnings will give investors another look at the embattled retail industry on Wednesday.

Investors will also keep an eye on the media space, as Disney (DIS) shares fell just less than 3% on Tuesday after CNBC’s David Faber reported that Disney and 21st Century Fox are close to a deal that would see Disney acquire Fox’s stupid and TV production assets, and potentially its regional sports networks and other properties. Fox’s news and broadcast assets are not expected to be involved in the deal, which Faber said could be announced as soon as next week.

‘So bullish, it’s bearish’

Bank of America Merrill Lynch chief investment strategist Michael Hartnett has reprised a self-contradicting theme for markets in 2018.

“Our overall outlook for the year ahead is macro bullish, so much so that we’re ultimately market bearish,” Hartnett said Tuesday as the firm unveiled its outlook for next year.

Back in October, Hartnett said the easiest reason to be cautious on markets heading into the fourth quarter of the year was simply that stocks had had such a strong run through the first nine months of the year. For the year ahead, the theme holds.

In the year to come, Hartnett sees the end of what he’s called the “Icarus trade,” which is the ever-rising price of risk assets as central banks have been huge buyers of fixed income assets around the world, but not before markets push higher amid strong economic growth, solid earnings growth, and low inflation.

Early next year, Hartnett and his team at BAML see the S&P 500 topping 2,850 with the tech-heavy Nasdaq potentially hitting 8,000. On Tuesday, the S&P closed around 2,630 and the Nasdaq closed at 6,760.

“Next year could be the year of euphoria,” Hartnett writes.

“Sentiment is now a more important driver of the S&P 500 than fundamentals, and sentiment suggests there is still room for stocks to move higher in the near term. The bull market in the S&P 500 is on a path to become the longest ever on Aug. 22, 2018, and if equities outperform bonds for a seventh consecutive year, it would be the first time since 1928 and only the third time in the past 220 years.”

This sentiment, however, is right now backed by fundamentals — strong U.S. and global economic growth, generally accomodative central bank policy, and solid corporate earnings growth with additional tax relief likely coming in the U.S.

And yet this abundance of good news right now, in Hartnett’s view, does not sow the seeds for further gains but simply pulls forward future positive returns for the market. And those who know market history know that the landscape tends to look best just before the environment changes.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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