A short, but eventful week

Market Recap week ending 1/3/2020

Happy New Year!  The Holiday-shortened week turned out to be quite eventful.  A US lead attack targeting an Iranian military leader was the most prominent event of the week and hit markets on Friday.  Earlier in the week, it was announced that Phase One of the trade negotiations between the US and China would be signed on January 15th in Washington at the White House.   China’s central bank (PBOC) also announced that it would be cutting the reserve requirement ratio on its banks by 50 basis points, which should provide more liquidity and lending capability.  Here in the US, the Federal Open Market Committee minutes were released and were considered very much in-line with Chairman Powell’s most recent statements.  Global manufacturing continues to be weak, as evidenced by this week’s US ISM manufacturing data.

For the week the S&P 500 lost -0.2%, the Dow shed -0.4%, the NASDAQ bucked the trend and gained 0.2%, and the Russell 2000 gave back -0.5%.  Safe-haven assets were well bid for the week.  The US Treasuries curve flattened a bit with the 2-year note yield falling by seven basis points to close at 1.51%, and the 10-year bond yield falling by eight basis points to close at 1.79%.  Bond prices climb as yields fall.  Gold prices increased by 2.25% or $34.20 an Oz to close at $1552.40 an Oz.  Oil prices also rose over 2%, with WTI closing at $63.03 a barrel.  There were a few changes to our Core Satellite models last week.  We increased our exposure to emerging market equities and bonds as well as increasing our position in gold.  We also reduced our exposure to the S&P 500 and long-duration US Treasuries.  Please let us know if you have any questions regarding these changes. 

A targeted lethal attack on the head of the elite QUDS force in the Iran Military, General Qasem Suleimani, and an Iraqi militia commander, Adu Mahdi al-Muhandis, by the US sent markets falling on Friday.  The attack comes after Iranian provoked riots at the US Embassy in Iraq and after several other attacks by Iran, including the recent attack on one of Saudi Arabia’s most productive oil fields.  After the attack, Iran vowed to retaliate while President Trump reiterated that he does not want the situation to escalate into war and that he is not seeking a regime change.  Markets seemed to take the news in stride and bounced off their lows nicely on Friday, but undoubtedly, the evolving situation adds another layer of risk to the market. 

Global Central banks continue to be accommodative.  Markets rallied nicely on Thursday after the PBOC (China’s Central bank) announced that they were cutting the reserve requirement on banks by 50 basis points.  The cut most likely generates an additional 115 billion in liquidity aimed at more lending to further help stimulate their economy.   

US December ISM manufacturing was weaker than expected and was the fifth straight reading below 50.  A reading below 50 indicates contraction in the manufacturing sector of the economy.  The data came in at 47.2 versus the consensus estimate of 49 and was also below the November figure of 48.1. 

Darren Leavitt, CFA

Portfolio Manager

& Sr. Market Analyst