Market Commentary for the week ending December 14th, 2019
- U.S. stocks rallied to new record highs on news of progress on the trade war with China
- Retail sales disappointed in November raising concerns about a fourth quarter economic slowdown
- The Federal Reserve leaves interest rates unchanged and intends to for all of 2020
Market Performance Summary
Notable Market Headlines
U.S. stocks propelled to new all-time highs on news that progress was made between the U.S. and China regarding trade. There are still many unresolved and difficult issues to be addressed but the markets were relieved that additional tariffs that were scheduled to go into effect will not and some existing tariffs were cut. International markets also rallied on this news posting even stronger gains that we saw in the U.S.
At the close of the week large U.S. stocks were higher by +0.8% as measured by the S&P 500. The tech-heavy NASDAQ did better, gaining +0.9%, as technology stocks were among the week’s best performers. The Dow Jones Industrials lagged behind with a gain of +0.4% impacted meaningfully by a -3.5% drop in the price of Boeing (BA) on news of further delays of the return of its 737 MAX. Small U.S. stocks also lagged behind but did gain +0.3%. Year-to-date the S&P 500 is up a whopping +28.7%!
International stocks fared even better than U.S. stocks with developed markets gaining +1.4% with the United Kingdom’s market surging +3.7% on the heels of the country’s election outcome. Emerging markets surged +3.1% overall with some of the biggest winners illustrated in the below graph. In spite of the week’s gains, emerging markets are lagging behind the rest of the world in 2019 with a gain of +14.6% as compared to developed markets higher by +21.1%.
Real estate stocks were the biggest loser this week falling a steep -3.5%. This sector peaked in late October less than 2 months ago and has been moving lower while the rest of the market has posted gains. Gold and commodities were both higher, up +1.0% and +1.1%, respectively.
Bond prices gained along with stocks, not always the case, by +0.3% leaving them up a strong +9.0% for the year. This move is a bit contrary to general expectations that a stronger economy, as is hoped for with the trade deal, could result in higher interest rates and lower bond prices. This general expectation was thwarted though by our Federal Reserve’s announcement that they are leaving rates unchanged at this time and do not expect to raise rates during all of 2020.
Many of the market’s best performing individual stocks were a direct result of optimism around the partial trade deal between the U.S. and China. Some of the key sectors seeing gains were technology, energy, and gambling.
For a few of the technology stocks in the accompanying table, it was not only a partial China deal that helped but also a call by one Wall Street analyst that a bottom has been reached in the pricing of memory. The call included upgrades of some stocks in the group.
Energy stocks are seen as winners from a trade truce on hopes that global economic growth and activity will pick up resulting in higher oil prices. Some of the biggest winners this week are illustrated in the below table.
Gambling stocks, including Wynn Resorts (WYNN) and Las Vegas Sands (LVS), rallied on news that China plans to invest significant resources into casino capital Macau where these companies both have properties.
Bristol-Myers Squibb (BMY), a developer and marketer of a variety of pharmaceuticals, has seen its stock rally nearly +50% from its July lows less than 5 months ago. This week the company had some good news related to one of its phase-three studies as well as strength in the overall industry fueled by a couple of acquisitions. This stock rallied +6.5% for the week, adding billions of dollars to its market value, but, as the graph below shows, the stock is still below its recent high in 2016.
The real estate sector, or REITs, all suffered losses this week with some of the biggest losers highlighted in the below table. Part of this selloff may have been driven by a downgrade of the sector by one Wall Street analyst as well as investors simply selling these more conservative stocks to purchase those that they think may grow faster due to the trade deal.
Economic Indicator - Reported
Retail sales disappointed for the month of November coming in higher by +0.2% which was well below the estimate of +0.5%. Some sector showing strength included gasoline, auto sales, and internet retailers while the majority of others lagged behind. The late Thanksgiving holiday, resulting in a shorted holiday shopping season, is being partially blamed for the growth miss but economists forecasting November’s number would have known and presumably considered this in their process. In spite of the month’s shortfall, expectations remain high that the holiday shopping season will be better than last year’s disappointment helped by a strong employment market and stock market.
The Consumer Price Index (CPI), a measure of retail inflation, rose by +0.3% resulting in its highest year-over-year gain since November 2018. When stripping out food and energy prices, known as the core CPI, prices rose +0.2%. Although this report showed prices gaining a bit more than expected, the year-over-year inflation rate of +2.1% is still low by historic standards.
Producer Prices (PPI), a measure of wholesale inflation, were unchanged in November with the 12-month rate of change falling to just +1.1%. This is the lowest level since 2016 indicating there is very little pricing pressure throughout the economy.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Housing Starts
- Industrial Production
- Existing Home Sales
- Gross Domestic Product (GDP) Revision