Investors Wait for Clarity on the Global Economic Outlook

Global equity markets finally succumbed to the worry that economic activity is slowing. A lower growth target in China was followed by a sharp downgrade of growth expectations in the Eurozone by the European Central Bank (ECB), and a shockingly small gain in new jobs in the U.S. Taken together it was enough to push some investors to the sidelines, eager to take their profits from the rally off the December low, and wait for greater clarity on the economic outlook. It didn’t help that there was little news regarding the U.S.-China trade negotiations, causing speculation that progress had slowed. For the week, the MSCI All Country World index fell 2.1 percent, its first weekly loss in the past four, and just the second this year. Notably, the index fell on each of last week’s trading sessions and has now fallen in eight of the past nine. The same is true of the S&P 500.

Better-than-Expected Economic Data Dampen Recession Concerns in the Near Term

Although the rate of ascent slowed, U.S. equities managed to rise once again last week. The S&P 500 added just 0.4 percent, down from 0.6 the week prior, and 2.5 percent the week before that. Nevertheless, it was the fifth straight week of gains, and the first since early October in which the index closed above the resistance level of 2800. 

Investors Feeling Optimistic as Trade Negotiations Continue

U.S. equities rose for the fourth straight week and for the eighth time in the past nine weeks since the pre-Christmas low. The S&P 500 is now higher on the year by 11.4 percent and sits just 5 percent below its September 20 record high. Rising optimism regarding a trade deal between the U.S. and China was more than enough to offset another round of mediocre economic reports. And Sunday’s news that the White House has extended Friday’s negotiating deadline will only reinforce that sense of optimism. The dollar eased slightly last week, and Treasury yields were little changed, as the two-year note fell three basis points to 2.49 percent and the ten-year yield fell by one to 2.65 percent. The result was a modest steepening of the curve to 15 basis points, keeping it in the 14 to 19 basis point range in which it has traded since the start of the year.

What Does the Recent Weakness in Economic Data Mean for Markets?

Driven by rising optimism that a trade deal with China may actually happen, stocks surged higher last week. The S&P 500 climbed 2.5 percent, its third straight weekly gain. In the process, the index closed above its 200-day moving average on Tuesday for the first time since December 3, and remained above it through Friday, and now sits 10.7 percent higher on the year.