Economic Update 1-13-2020

• Economic data for the week included a stronger than expected ISM non-manufacturing/services survey. While the December employment data came a bit below expectations, it still showed decent growth.
• U.S. equity markets fared positively, as geopolitical strains with Iran tempered, outperforming foreign developed market stocks, but underperformed emerging markets. Bond markets were little changed on net. Commodities lost ground as crude oil prices plummeted with Middle East U.S.-Iran de-escalation and high global supplies.

U.S. stocks experienced a mixed year-end and opening to 2020, with finalities over phase one of the U.S.-China trade agreement extending market optimism toward New Year’s. But, by the end of the week, a surprise geopolitical element put a wildcard in the mix due to the U.S. military action in Iraq that resulted in the death of a well-regarded Iranian general—naturally raising tensions between the two nations and unsettling global markets. By sector, gains in industrials and energy were offset by declines in materials, consumer staples and healthcare—the latter being generally defensive groups.

Foreign stocks fared similarly to U.S. equities, with Japan ending the week worst in local terms, but best when adjusted for a stronger yen, resulting from a ‘safe haven’ flows. This was followed by negative returns in Europe and the U.K., in keeping with continued weak manufacturing sentiment results for both. Emerging market stocks ended with the fewest losses on the week. Sharp gains in China followed the central bank’s lowering of bank reserve requirements—a stimulative measure to offset damage caused by trade tensions.

U.S. bonds ticked higher along with the Middle Eastern friction, with long-term rates heading lower by over ten basis points. This benefitted treasuries primarily, although all other domestic bond groups, including high yield and floating rate bank loans, also gained for the week. Foreign developed market bonds also fared well, with little change in the value of the dollar, while emerging market debt fell back.

Commodities ticked slightly higher on the week, led by energy, as the other sectors ended the week flat to negative. Offsetting a -5% decline in natural gas, the price of crude oil rose by 2% to over $63/barrel, largely on the geopolitical event between the U.S. and Iran. The muted market response was interesting, compared to years past where such military action would have generally meant a much more meaningful knee-jerk response higher for oil prices.

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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