Markets Received an Abundance of News Last Week, Although Investors Continue to Focus on Fundamentals
Reading that sentence, you might be forgiven for thinking this was the start of another of those “year in review” articles, so ubiquitous this time of year. But those headlines are all from last week alone. Keeping up with the news flow is seemingly becoming a full-time job, but perhaps the holiday weeks ahead will offer a brief respite from the recent frantic pace.
The Consumer Continues to Be the Backbone of the Expansion
Investors continue to focus on economic and market fundamentals, while tuning out politics, driving the S&P 500® Index to a gain of 1.7 percent last week, the best weekly gain since early September. In price terms, the index is now higher on the year by 28.5 percent. It was a mixed bag of sector leaders last week compared to the recent past. Communications services led the way on the back of huge price gains by Netflix and Facebook. Utilities and real estate climbed sharply despite a rise in bond yields that took the ten-year note higher by ten basis points to 1.92 percent. Technology and healthcare were also strong. Experiencing modest declines were industrials and financials.
Last week’s economic data in the U.S. offered some reassurance to those worried that the consumer was beginning to fade. A lull in early December holiday shopping and a disappointing retail sales report for November had some concerned that consumer spending, the primary pillar of the current expansion, was beginning to soften. But the November reports for both personal income and spending were stronger than expected, showing that the consumer remained in a strong position, with an almost 8 percent savings rate offering an additional cushion of financial flexibility. And the University of Michigan’s final December Survey of Consumer Sentiment increased for the fourth straight month, including a sizeable jump from November. And industrial production in November exceeded expectations, with notable strength in manufacturing. The flash manufacturing report matched expectations, showing modest growth with a reading of 52.5. It should be noted that the flash report never fell below the expansion/contraction line, bottoming out just above it with a reading of 50.3 in August. The most recent manufacturing report from the Institute for Supply Management (ISM) for November showed a fourth straight month of contraction, beginning in August. The next report, for December activity, is scheduled for January 3, and is forecast to show a fifth straight month of contracting activity.
U.K. Stocks Rise After Finally Receiving News on Brexit
Stocks in the U.K. rose smartly last week, as parliament gave Boris Johnson a victory to proceed with Brexit by the end of January, with the deal he negotiated with the European Union back in October. The British pound fell sharply following the vote as it included a hard stop to negotiations on a trade deal at the end of 2020, a tight window for negotiations, theoretically increasing the odds of a hard Brexit. For the week, the pound fell from 1.333 to the dollar to 1.299. In response, the more internationally focused FTSE 100 index surged by 3.1 percent, while the more domestically focused 250 index rose 0.8 percent.
Clarity on Trade Policies Means Global Economy May Cruise Into 2020
As we look ahead to 2020, the global economy is showing some modest signs of improvement. The U.S. economy is chugging along at roughly the same 2.0 percent pace it has enjoyed throughout much of the expansion. And trade policy uncertainty, a primary headwind to global growth, especially manufacturing, is showing some welcome clarity with the recent U.S.-China trade agreement and the progress on Brexit. And central banks remain accommodative. We expect financial asset returns in the new year to be more modest than this year’s returns, but positive nonetheless. By most measures, 2019 has been extremely rewarding for investors. The MSCI All Country World Index is higher year-to-date by 23.6 percent in price terms, and the Bloomberg Global Aggregate bond index is higher by 6.2 percent. Rewarding indeed.
We wish everyone a happy and healthy holiday season.
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The Standard & Poor’s 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees.
University of Michigan Consumer Sentiment Survey is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6.0 points.
The Institute for Supply Management (ISM) manufacturing index is a national manufacturing index based on a survey of purchasing executives at roughly 300 industrial companies.
The FTSE 100 is a market-weighted index of the 100 leading companies traded in Great Britain on the London Stock Exchange.
The FTSE 250 is a market-weighted index of the 101st- to the 350th-largest companies traded in Great Britain on the London Stock Exchange.
MSCI All Country World Index is a market capitalization weighted index, representing 23 developed countries and 24 emerging markets, that gives a broad measure of equity market performance throughout the world.
The Bloomberg Barclays Global Aggregate Index measures a wide spectrum of global government, government related agencies, corporate and securitized fixed income investments, all with maturities greater than one year.
It is not possible to invest directly in an index.
Past performance is not a guarantee of future results.
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