S&P 500 and NASDAQ forge new all-time highs

Market Recap Week ending 12/13/2019

The S&P 500 and NASDAQ forged new all-time highs in what was a hectic week for investors.  Trade continued to be top of mind as the December 15th deadline for an additional tranche of tariffs loomed.  On Thursday, President Trump tweeted that the US and China were very close to a Phase One agreement, which subsequently put a strong bid into the markets.  Investors also heard from the Federal Reserve and the European Central Banks.  The results and statements of each meeting were very much in line with expectations.  Additionally, markets awaited the results of the UK election.  Boris Johnson won by a large margin, which induced a nice move in Sterling and the UK FTSE, which increased by 1.4% and 1.1%, respectively.  On the economic front, investors digested November Retail Sales, The Consumer Price Index, and Producer Price Index.  For the week the S&P 500 gained 0.73%, the Dow tacked on 0.43%, the NASDAQ led with an increase of 0.91%, and the Russell 2000 lagged the others with a gain of 0.25%.  US Treasuries had a very volatile week but ended the week relatively flat from the prior week’s close.  The 2-year note yield decreased by three basis points to close at 1.60% while the 10-year bond yield fell by two basis points closing at 1.82%.  Gold rallied 1% or $15.30, closing at $1480.80 and Oz.  Oil had another up week, WTI closed up $0.91 at $60.11 a barrel.  Of note, Saudi Aramco priced its IPO last week.  The company is valued at $1.88 trillion which makes it the largest listed company in the world, and the IPO also was the largest offering in history- surpassing Alibaba’s IPO back in 2014.  Company shares rallied to limit up or 10% in Riyadh in its first day of trading.  There were no changes to our models last week. 

Trade continued to dominate the headlines.  The December 15th deadline, which was to set another tranche of tariffs in place, caused investors to take a wait and see approach early in the week.  In the end, it appears that a vague Phase One deal has been agreed to but will not be signed until January, which also cast some doubt on the deal.  President Trump will cut some tariffs and delay the duties that were to be imposed on the 15th.  China has agreed to buy 40-50 billion in US farm products but the details on these purchases were limited.  Trump also indicated that negotiations would begin immediately on Phase Two of the deal but the Chinese did not reiterate this notion and expressed more of a wait and see tone.  Never the less, the announcement on Thursday propelled stocks to fresh all-time highs.  Also of note, on the trade front, was the news that a deal had been reached in Congress on the USMCA (US, Mexican, Canada trade agreement). 

The Federal Open Market Committee meeting came to an end on Wednesday with a unanimous decision to leave the target range for the Fed Funds Rate at 1.50%- 1.75%.  The decision was very much in line with the market’s expectations.  The median outlook on the Fed Funds Rate for 2020 suggests no new cuts or hikes.  Separately, the European Central bank kept its policy rate unchanged at -0.50%.  Christine Lagarde, the new President of the ECB, did comment that she sees signs of recovery in the Eurozone.  Bottom line- global central banks continue to be accommodative.

In the UK, markets rallied on the landslide win of Boris Johnson.  The election is seen as a proxy for the next move in the saga known as Brexit, and all eyes now turn to the end of January for some negotiated exit for Britain from the EU.  A negotiated exit rather than a hard exit seemingly would benefit both parties and will most likely alleviate some market risk in the region. 

Retail Sales for November were a bit disappointing.  The headline number came in at 0.2% versus expectations for 0.5%.  Consumer Prices increased in November, coming in at up 0.3% versus the consensus estimate of 0.2%.  Core CPI, which excludes food and energy, was in line with expectations of 0.2%.  The Producers Price Index was also reported in line with expectations of .2%.  These reports suggest the consumer might have been a little more cautious on discretionary spending during November and that inflation continues to be in check. 

Darren Leavitt, CFA

Portfolio Manager

& Sr. Market Analyst