Positive Developments on the Trade Front

Market Recap Week ending 1/17/2020

Positive developments on the trade front, better than expected global economic data, and a positive start to Q4 earning seasons all helped to send US equity markets to another set of all-time highs.  The S&P 500 gained 1.97% while the Dow added 1.82%, the NASDAQ increased by 2.29%, and the Russell outperformed with a gain of 2.53%.  Safe-haven assets were rather muted.  The 2-year yield was unchanged on the week and closed at 1.56%.  The 10-year yield increased by one basis point to close at 1.84%.  Gold closed up $0.20 to close at 1560.10 ozt.  Oil continued to come off the highs seen from a couple of weeks ago.  WTI closed down $.44 or -0.8%, at $58.55 a barrel.  There were no changes to our models last week. 

As expected, the US Senate passed the USMCA that now will replace a good part of NAFTA.  “Phase One,” the first step in the US and China trade agreement, was also signed last week.  Current tariffs will stay in place until after the November presidential election.  Negotiations are ongoing between the US and China with intellectual property protection and enforcement set as agenda priorities.   Separately, the US Treasury took China off its list of countries designated as currency manipulators. 

Global economic data was, for the most part, constructive for the markets during the week.  In the US, Housing Starts and building permits were healthy.  In December, Housing starts came in at 1608k versus expectations of 1380k.  Headline retail sales in December increased by 0.3% versus the consensus estimate of 0.4%.  However, the refined ex-auto metric came in at 0.7% versus the forecast of 0.4%.  Preliminary January University of Michigan Consumer Sentiment came in at 99.1 above the consensus estimate of 98.9 but just below the final December reading of 99.3.  In China, December retail sales were better than expected, growing 8% on a year over year basis.  December Industrial production also impressed with a gain of 6.9% versus the estimate of 5.9% and beat the prior reading of 6.2%.  China’s GDP grew at 6.1% for the year which is the slowest growth in the last 30 years. 

The fourth-quarter earnings season kicked off last week with the financials leading the way.  JP Morgan, Morgan Stanley and Citi bank reported better than expected earnings while Wells Fargo and Goldman Sachs disappointed.  Retailer Target also missed the mark due to weaker than expected holiday sales.  Of note, the Transports were also a bit of a disappointment.  JB Hunt, CSX, and Expeditors International all fell on their earnings reports.  Elsewhere, analyst upgrades continued to help the Technology sector.  Google joined the Trillion dollar club last week with an analyst upgrade and increased price target.  Apple was also a beneficiary of a price target increases and positive analyst reports. 

Darren Leavitt, CFA

Portfolio Manager

& Sr. Market Analyst