Weekly Commentary (11/18/19) – Déjà vu – Another Weekly Gain

November 18, 2019

Markets advanced last week on renewed optimism for progress on trade, better than feared earnings reports and confirmation that the U.S. consumer remains in good shape. Headline news surrounding the impeachment process seemed to be dismissed by the markets. After all – It’s the economy, stupid – as James Carville, Bill Clinton’s campaign strategist in 1992, aptly said.

For the week, the DJIA advanced 1.37% while the S&P 500 gained 0.93%. Noteworthy is the fact that the DJIA breached 28,000 for the first time ever while the S&P 500 notched its sixth straight week of gains. The volatile Nasdaq added on 1.11%. Developed international markets moved higher, albeit at a slower pace. For the week, the MSCI EAFE index gained 0.54% while emerging market equities (MSCI EM) jumped 1.50%. Small company stocks, represented by the Russell 2000, finished ahead by 0.63% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors continued to flee to the perceived safety of bonds. As a result, the 10 YR US Treasury closed at a yield of 1.83% (down ~11 bps from the previous week’s closing yield of ~1.94%). Gold prices closed at $1,467.30/oz – up 0.41% on the week. Oil prices jumped $0.48 (or 0.84%) last week as oil remains range bound due to sufficient supply and tepid demand.

Economic news released last week was mixed. On Wednesday, the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) advanced 0.4% in October and 1.8% year-over-year. On Thursday, the BLS reported that the Producer Price Index (PPI) advanced 0.4% in October, ahead of expectations for a 0.3% advance. The PPI advanced 1.1% year-over-year. Neither the CPI nor PPI point to unreasonable or out of control inflation, and this gives the Fed more time to remain accommodating. On Thursday, the Department of Labor reported that initial jobless claims for the week ending November 9 were 225,000, slightly above expectations of 215,000. The labor market remains quite resilient, and jobless claims remain under the 300,000 threshold for the longest streak of weekly records for data reaching back to 1967. On Friday, the U.S. Commerce Department reported that retail and food-service sales moved ahead by 0.3% in October, ahead of expectations for a 0.2% advance. While the consumer remains in good shape, industrial production continues to be challenged. October industrial production fell 0.8% while consensus was for a 0.4% decline. No doubt, lack of clarity on a trade deal is holding back industrial production.

We would not be surprised if the markets paused for a while given the market’s healthy advance over the past month. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.”Helen Keller