Economic Update 12-23-2019

• In a heavier week for economic releases, housing data came mixed but on a stronger trend as of late, industrial production increased more than expected, while manufacturing was mixed, as was labor data.
• U.S. equity markets gained along with stronger geopolitical optimism, as did emerging markets, both of which outperformed foreign developed markets. Bonds lost ground on the heels of this better sentiment and accompanying higher interest rates. Commodities generally gained ground as well, led by energy and metals.

U.S. stocks experienced solid gains in the wake of the U.S.-China phase one deal announced the prior week. From a sector perspective, several groups gained over 2% on the week, including utilities, communications, energy, and health care. Industrials was the laggard, moving only a fraction of a percent higher, due to apparent weakness in FedEx results and negative sentiment surrounding the Boeing 737 Max production shutdown. Real estate also fared in the middle of the pack despite higher interest rates during the week.

Foreign stocks were mixed, with flattish results on net in developed markets. The U.K. pound gave  back some of the prior week’s gains, as the ‘buy the rumor, sell the news’ adage seemed to hold true concerning the pro-Brexit elections, yet uncertainty remains concerning the implementation. European stocks fared well, despite Eurozone manufacturing PMI falling further into contraction, for almost a year straight, despite estimates calling for a bottoming and near-term turnaround—but keeping stimulus hopes intact. Japanese stocks fell, as the BOJ kept interest rates and stimulative monetary policy unchanged. Emerging markets fared best, with continued optimism over the U.S.-China trade agreement leading sentiment, in Asian markets mostly outside of China, as well as Brazil.

U.S. bonds declined in price, along with rising interest rates that coincided with higher economic and geopolitical optimism. Investment-grade credit outperformed treasuries slightly, while high yield bonds and leveraged bank loans earned positive returns in line with other risk assets for the week. Foreign bonds in developed markets fared similarly in local terms, but ended up lagging to a greater degree due to a stronger dollar last week. However, emerging market currencies actually strengthened against the USD, enhancing performance.

One unique event in the foreign bond market, was Sweden’s decision to exit the negative interest rate experiment, by moving short-term policy rates back up by a quarter-percent to 0.0%. While a minor market in the whole scheme of things, this may be a sign of the abandonment of an unusual policy that creates a variety of problematic side effects for a variety of functions in the financial sector.

Commodities were up slightly overall during the week, despite a stronger dollar, led by gains in energy and industrial metals, which fell along the same lines as the pro-risk theme helping equities. The price of crude oil rose by almost a percent to around $60.50/barrel, with lower concerns over forward demand.

Have a good week and Happy Holidays.

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. 

FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT