Broker Check

November 18, 2019 - More Highs on Trade Optimism

| November 18, 2019

U.S. stocks rallied for the sixth consecutive week, notching more new record highs along the way. Late week optimism surrounding trade provided most of the spark, as lead U.S. negotiators expressed confidence a “phase  one” trade agreement with China could be reached soon. The S&P 500 has not dropped two consecutive days  since October 7–8.

Economic data showed that consumers continue to spend, buoying healthy inflationary pressures and growth. The Consumer Price Index (CPI), which excludes food and energy prices, rose 2.3% year over year in October, slightly lower than September’s cycle-high 2.4% growth. Producer price growth continued to wane, but it has yet to materially weigh on companies’ end-pricing power. Retail sales rose a better-than-expected 0.3% in October, the measure’s seventh gain in eight months.

International data was mixed with Japan’s gross domestic product (GDP) unexpectedly slowing sharply while Germany narrowly avoided recession with 0.1% GDP growth in the third quarter.

Global stocks lagged behind domestic stocks last week despite optimism on trade and recent signs of stabilization in global economic growth. Emerging markets stocks lost ground on losses in Chinese stocks despite trade optimism. Losses in Japan weighed on the international developed stock market index.

Growth stocks outperformed value while small cap stocks lagged behind large caps, a return to 2019 trends. Falling interest rates boosted real estate and utilities while weighing on financials. Growth oriented communication services, healthcare, and technology also performed well. Energy fell despite a slight rise in crude oil prices.

U.S. fixed income climbed and the 10-year U.S. Treasury yield fell from a three-month high amid a mixed bag of trade headlines midweek and falling yields internationally. Benign U.S. inflation data was expected and had little impact on bond yields. The Bloomberg Barclays U.S. Aggregate Index rose 0.6%, led by gains in investment-grade corporate bonds and Treasuries. All major fixed income sectors we track finished the week higher, though high-yield corporate bonds needed Friday’s rally to get there.

The U.S. dollar edged lower on the week, while commodities were broadly mixed with precious metals outperforming industrial metals. Gold garnered support from a weaker dollar and lower interest rates, moving higher following last week’s 3.7% slide. China-sensitive copper prices fell the most since September, consistent with weekly losses in Chinese stocks. It was a quiet week for oil, which hovered around $57 per barrel for the second consecutive week.

Next week, investors in the United States will get housing data, minutes from the last Federal Reserve policy meeting, the Conference Board’s Leading Economic Index (LEI), consumer confidence, and the Markit Services and Manufacturing purchasing managers’ index (PMI) surveys. Finally, another 15 S&P 500 components will report earnings next week as third-quarter earnings season wraps up.



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