Economic Update 12-03-2018
- Economic data for the week included an updated release of prior-quarter GDP that was unchanged, stronger housing prices but weaker housing sales metrics, slightly weaker consumer confidence and an increase in jobless claims.
- U.S. equity markets rebounded sharply with decent economic numbers and less aggressive language toward interest rate tightening from the Federal Reserve. Foreign stocks followed suit, with emerging markets outpacing developed. Bonds gained ground as interest rates declined, in both U.S. and foreign markets. Commodities were mixed, while crude oil prices rebounded slightly.
U.S. stocks recovered sharply during the final week of November, to erase some of the recent negativity. Mid-week, stocks shot upward following comments from Fed Chair Powell that acknowledged risks in the economy—stocks fared well due to the assumption that such fears may keep a lid on interest rate increases looking ahead. Additionally, positive sentiment surfaced from hopes of a U.S.-China trade agreement at the G20 meeting (which proved prescient, with the U.S. announcing a two-month postponement of trade escalation until March, and China agreeing to resume selected purchases of agricultural, industrial and energy products). Keys in an agreement remain the outstanding issues of cyber security and intellectual property. From a sector standpoint, all were in the positive, with leadership by healthcare, consumer discretionary and technology, while consumer staples and materials rose to the least degree. November ended with positive equity returns, perhaps surprisingly, while December has also tended to fare well historically (nearly 80% of Decembers over the past 40 years have been positive).
Eyes have also been focused on retail conditions—typically assessed by results for Black Friday and Cyber Monday—which look decent so far. Online sales were up over +26% over last year, per research from Adobe Systems; and while traffic in physical stores declined in the single-digits, it was better than expected. The positivity overall is not too surprising, considering fundamental macro strength, including a strong labor environment, which often correlates into levels of retail spending during the holidays.
Foreign stock returns were also positive, but less buoyant than those in the U.S. However, emerging markets outperformed Europe, U.K. and Japan. In the U.K., an upcoming vote on the Brexit deal is slated for Dec. 11, with odds of passage continuing to vacillate. Much of the positivity was centered on China, where sentiment appears to be seeing some bottoming and hopes rose again for a trade agreement at the upcoming weekend’s G20 meeting. In addition, the government has put through a variety of stimulus measures to help stem the recent slide in growth, as well as cushion the blow from any negative ramifications from U.S.-China trade impacts in coming quarters. The strong returns were spread among a variety of EM nations, including India, South Korea and Turkey, as lower U.S. interest rates and dovish Fedspeak may have played a role as well. Despite claims that emerging markets are less influenced by Fed policy, higher rates continue to act as a general headwind through a tightening of conditions and effects on bond issuance.
U.S. bonds rose slightly on the week, as bond yields continued to tick downward—partially due to renewed hopes that interest rates will not rise as fast as initially feared. Treasuries outperformed investment-grade corporates, while high yield eclipsed both, with help from strong returns in equities. The dollar gained minimally on the week, but foreign developed and emerging market debt all fared the strongest of all, as yields fell along with concerns over global growth prospects.
Commodities were mixed on the week, with agriculture experiencing the strongest gains, followed by energy, while safe haven precious metals fell back with positive sentiment toward risk assets. Crude oil experienced a quieter week than the prior few, rising back about a percent on the week to close just under $51/barrel. U.S. stockpiles continue to increase, based on data from the U.S. Energy Information Administration, while more recent focus turned to the weekend’s G20 meeting, and possible policy discussion between key oil nations, such as Russia and Saudi Arabia.
|Period ending 11/30/2018||1 Week (%)||YTD (%)|
|BlmbgBarcl U.S. Aggregate||0.13||-1.79|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.