Economic Update 11-18-2019

• Economic data for the week included slightly higher-than-expected consumer and producer price inflation, positive retail sales and regional manufacturing data, while import prices declined.
• U.S. equity markets ended the week as the best performers, with a positive showing, and outperformed mixed results in foreign equities. Bonds gained ground as interest rates fell back from recent peaks. Commodities were mixed with higher oil prices, but weaker showings from industrial metals and natural gas.

The week started in a rough note as protests in Hong Kong escalated, resulting in violence and further uncertainty about governmental response from China. Otherwise, mixed results in the U.S. and global economies sustained pricing for equities, when coupled with continued optimism about a ‘phase one’ deal between the U.S. and China that the administration has promised as ‘close’. Fed Chair Powell also appeared before the House Budget Committee, and reiterated the current stabilization in policy after three interest rate cuts. Defensive sectors utilities, health care and consumer staples provided the strongest returns, well over a percent, while energy weakness continued, with the sector down a percent.

Foreign stocks offered mixed results, with all groups generally trailing results in the U.S. Broader indexes in the Eurozone and U.K. were slightly above zero, while Japanese stocks lost ground slightly. Perhaps importantly from a sentiment standpoint, German GDP growth for Q3 came in at a positive 0.1%, while Europe as a whole grew at a 0.2% rate, which matched growth in Japan for the quarter. The U.K. grew 1.0%, which was a bit better than expected considering Brexit worries. Emerging markets fared worst, with losses in China over -3%, and Hong Kong of -5%, as well as mixed to lower returns among other BRICs. In China, this was the result of weaker economic data points in industrial production, retail sales, and fixed asset investment—demonstrating how the trade war taking its toll on overall economic activity, despite claims by the government to the contrary. Hong Kong continued to be gripped by increasingly violent protests with an uncertain outcome, now that initial demands for withdrawal of an extradition policy to mainland China has been satisfied.

U.S. bonds recovered a bit of ground, as interest rates fell back across the yield curve by 10 basis points or so. Longer duration governments and investment-grade corporates provided the strongest gains, while high yield and bank loans rose to a far lesser degree to lag the group. Foreign developed market debt benefitted from lower rates and a slightly weaker dollar, while emerging market debt was mixed.

Commodities were mixed on the week, with strength in energy and precious metals, while industrial metals lost several percent—led by weakness in nickel and zinc—as fears of economic slowing remained persistent. The price of crude oil rose by a percent to just below $58/barrel, which was offset by natural gas falling over -3%.

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. 

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