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December 16, 2019 - Stocks Rise as Uncertainty Clears

| December 16, 2019

U.S. stocks rose this week, with the S&P 500 Index gaining for the ninth week out of the past ten. Stocks rallied late in the week in anticipation of a “phase one” trade deal with China and the removal of a tariff hike scheduled for December 15. A verbal agreement was reportedly reached on Friday. Investor sentiment was also lifted by United Kingdom (U.K.) election results and Federal Reserve (Fed) communications. Economic data was mixed. Gross domestic product (GDP) grew 2.1% in the third quarter thanks to a 20 basis point (0.2%) upward revision in inventories, according to revised data. The Conference Board’s Consumer Confidence Index slid for a fourth straight month in November, but the gauge remained elevated historically. Orders for nondefense capital goods (excluding aircraft), a proxy for capital expenditures, jumped the most in nine months in October, according to preliminary data.

Economic data was mixed overall this week, though it is notable that the Fed characterized the U.S. economy in more upbeat terms. The core Consumer Price Index, excluding food and energy prices, grew a manageable 2.3% year over year, while core producer price inflation fell to a three-year low. Holiday distortions drove a jump in weekly jobless claims that could soon reverse. Retail sales missed expectations, but rose 0.2% in November following an upwardly revised 0.4% increase in October.

Global stocks rose last week, led by emerging markets amid progress on trade and a weaker U.S. dollar. The MSCI EAFE Index of developed market stocks rose 0.4% through Thursday, led by Germany, France, and the U.K. European markets got a boost Friday following U.K. Prime Minister Boris Johnson’s convincing election victory. The MSCI Emerging Markets Index gained more than 2% over the first four days of the week, led by China, South Korea, and Taiwan.

The Russell 2000 Index of small cap stocks trailed the large cap stock benchmarks for the week after outperforming the prior two weeks. The growth style of investing outperformed value slightly on technology sector outperformance and weakness in real estate and utilities.

The 10-year U.S. Treasury yield climbed to a one-month high on Thursday before dropping on Friday, as details of a U.S.-China trade agreement dampened risk appetite. The Bloomberg Barclays U.S. Aggregate Bond Index fell during the week through Thursday. Credit-sensitive fixed income outperformed, with emerging markets debt and high-yield corporate bonds leading returns.

The U.S. dollar fell for the second consecutive week as both the euro and British pound rallied amid U.K. elections and central bank meetings on both sides of the pond. Oil prices broached the $60 per barrel mark on trade progress and last week’s OPEC production cuts, before finishing the week just under that level.

Industrial metals outperformed precious metals, with copper delivering a second straight strong week to bring its two-week gain to more than 4%. Gold garnered support from a weak U.S. dollar and moved higher despite the market’s preference for riskier assets. The price of gold has traded in a range of less than 3% over the past five weeks.

Next week the U.S. economic calendar will deliver preliminary December Markit Purchasing Managers’ Index (PMI) data on Monday and industrial production on Tuesday. Housing data is on tap for Tuesday and Thursday, and the November update for the Leading Economic Index (LEI) will be released on Thursday. Revised Q3 2019 gross domestic product and consumer confidence will come out on Friday, December 20.

Internationally, investors will evaluate Eurozone manufacturing survey data on Monday, followed by a Eurozone inflation report on Wednesday and the Bank of Japan’s policy decision on Thursday. November data from China is also expected next week, including capital investment, industrial production, and retail sales.



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