U.S. stocks rallied for the fifth consecutive week, notching new record highs along the way. Optimism surrounding trade provided most of the spark, as the United States and China moved closer to signing a “phase one” trade deal by year-end. Sentiment was boosted even further on Thursday following a report that both sides had agreed to remove some existing tariffs as part of the potential deal.
Economic data took a backseat to trade headlines as investors anticipated potential better economic growth following any trade deal. Nonfarm productivity unexpectedly slid 0.3% in the third quarter, its first quarterly decline since the fourth quarter of 2015. Meanwhile, the U.S. services sector remained steady, climbing to 54.7 in October, its 117th straight month in expansionary territory (above 50).
Global stocks rallied along with domestic stocks, as the Euro STOXX 50 Index hit its highest level in more than two years, and the Nikkei climbed to levels not seen since November 2018. Emerging markets faired even better on the week, outperforming the U.S. and foreign developed markets amid the continued de-escalation in trade tensions.
Value stocks outperformed growth stocks for the third time in the past four weeks, while small cap stocks slightly lagged behind their large cap counterparts. Cyclical sectors including energy, financials, industrials, and materials delivered solid gains, while the defensive and interest-rate sensitive real estate and utilities sectors sold off sharply.
U.S. fixed income sold off as the 10-year U.S. Treasury yield jumped to its highest level in three months. Credit-sensitive sectors helped to cushion the blow a bit amid the risk-on rally, with high-yield bonds marginally higher on the week. The less interest rate sensitive mortgage-backed securities sector outperformed amid the big move higher in interest rates.
The U.S. dollar moved higher on the week, which weighed some on commodities’ prices. Copper and oil were exceptions, rising on positive trade headlines because of sensitivity to Chinese demand and global economic growth. Gold suffered its worst week since 2016 due to the strong dollar and the market’s rotation away from more defensive investments.
Next week, investors in the United States will get closely watched inflation data, with the Consumer Price Index on Wednesday, followed by the Producer Price Index report on Thursday. Industrial production for October will be reported on Friday, Nov. 15, and 15 S&P 500 components will report earnings next week as third-quarter earnings season wraps up. Internationally, the docket includes preliminary third quarter gross domestic product (GDP) numbers from Japan and Europe, along with industrial production data from the Eurozone, Japan, and China.
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