Weekly Commentary (12/16/19) – Markets up on Trade Deal

December 16, 2019

Markets advanced last week in anticipation of and on news that the U.S. and China have agreed on a Phase One trade deal. While the deal has not been officially signed, the Office of the United States Trade representative issued a press release saying that the deal “achieves meaningful, fully-enforceable structural changes and begins rebalancing the U.S. – China relationship.” Also supporting the markets was continued dovish news from the Fed as they decided at their December meeting to leave interest rates unchanged.

For the week, the DJIA advanced 0.43% while the S&P 500 gained 0.73%. The tech-heavy Nasdaq added on 0.91%. International markets moved higher on renewed hopes for a pickup in global growth. For the week, the MSCI EAFE index gained 1.72% while emerging market equities (MSCI EM) jumped 3.63% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 0.25% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.82% (down ~2 bps from the previous week’s closing yield of ~1.84%). Gold prices closed at $1,475.60/oz – up 1.13% on the week. Oil prices jumped 1.47% last week as oil remains mostly range bound due to sufficient supply and tepid demand.

Economic news released last week confirmed a strong jobs market and still moderate inflation. On Wednesday, the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) advanced 0.3% in November and 2.1% year-over-year. Core CPI advanced 0.2% in November and 2.3% over the past 12 months (in-line with expectations). On Thursday, the BLS reported that the Producer Price Index (PPI) was unchanged in November, lower than expectations for a 0.2% advance. The PPI advanced 1.1% year-over-year which was lower than consensus for a rise of 2.0%. Neither the CPI nor the 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 December 7 were 252,000, above expectations of 213,000. 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 0.2% in November, below expectations for a 0.5% advance.

Economic and market fundamentals remain reasonable. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“The measure of who we are is what we do with what we have.”Vince Lombardi