11/25/2019
The rally in U.S. equities stalled last week. After six straight weeks of gains, the S&P 500® Index slipped 0.3 percent, hardly cause for worry, and rather more indicative of some fatigue in the absence of market moving news. There was nothing much new on the trade front, although it is worth noting that another round of tariffs is scheduled for December 15, creating an unofficial deadline for getting a phase one deal done. On the other hand, the economic data was generally positive, just not enough to elicit much reaction. Perhaps the most encouraging reports were the flash Purchasing Managers' Indices (PMIs), which were stronger than anticipated for both manufacturing and services. The housing data was mostly in-line with estimates, while consumer sentiment was steady. Disappointingly, the index of leading economic indicators fell for the third straight month in October, for the first time since early 2016. 

The ten-year note yield fell for a second straight week, this time six basis points to 1.77 percent. The two-week retracement totals 17 basis points, as some of the enthusiasm has ebbed from the cyclical rotation of the previous month and a half. And spreads among the weakest credits continued to widen. Among CCC-rated corporates, option-adjusted spreads have widened 115 basis points in the past two weeks to 1,273, the widest in three years, according to Bloomberg. 

Unsurprisingly, U.K. Markets Are Lackluster Amid Mixed Data, Meandering Brexit 

The economic data was more mixed in the Eurozone. The flash manufacturing PMI was slightly better than expected, although it remained well in contraction territory. However, the services component was weaker than expected, pulling the composite reading lower. The U.K. was notably weaker. Both the manufacturing and services PMIs declined, pushing the composite back into contraction. The currency weakened on the news, lifting the export-oriented FTSE 100 to a one-day gain of 1.2 percent. This was enough to result in a 0.4 percent gain for the week. Curiously, for the past eleven weeks the FTSE 100 has been in a pattern of a weekly loss, followed by a weekly gain. The more domestically focused FTSE 250 index rose half that amount, on its way to a fourth straight weekly gain. 

The Brexit saga seems to be moving inexorably toward its conclusion, although with no assurances. National election predictions (the election is on December 12) seem to favor Boris Johnson’s conservative party, but we all know how unreliable polls can be. The new Brexit deadline is January 31. But as we have seen, deadlines can be extended. That deadline would become moot, of course, if Johnson wins the election and parliament passes his Brexit proposal. At the same time, a range of outcomes remain possible, including everything from further negotiations with the European Union, to a second referendum, to a no-deal hard Brexit at the end of January, to simply cancelling Brexit altogether by revoking Article 50.  

Investors Will Be Watching the Myriad of Data Released This Week

Despite the holiday-shortened week ahead, the economic calendar is quite full. In the U.S., scheduled reports include personal income and spending, personal consumption expenditure (PCE) deflator, durable goods orders, consumer confidence, new and pending home sales, and revised third quarter gross domestic product. At the end of the week, China is scheduled to release its official PMI indices, which are forecast to show some modest improvement. 

Important Disclosures:

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Individual securities referenced are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. 

The S&P 500 Index is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value (shares outstanding times share price), and its performance is thought to be representative of the stock market as a whole. The S&P 500 index was created in 1957 although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall US equity market. Over 70% of all US equity value is tracked by the S&P 500. Inclusion in the index is determined by Standard & Poor’s and is based upon their market size, liquidity, and sector. It is not possible to invest directly in an index.

The Purchasing Managers’ Index™ (PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers’ Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.

The Eurozone Manufacturing Purchasing Managers’ Index (PMI) is a weighted indicator calculated from indices of output, new orders, employment, suppliers’ delivery times and stocks of purchases.
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.
Past performance is not a guarantee of future results.

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