Week in Review 1.3.2020

Equity markets ended a choppy week little changed as optimism about trade and additional Chinese stimulus was offset by increased tensions between the U.S. and Iran, and disappointing U.S. manufacturing data.
On Tuesday, markets concluded one of their better years in recent memory. The S&P 500 gained 31% in 2019, its best year since 2013. Not to be outdone, the Barclays Agg, a broad measure of the U.S. bond market, gained almost 9%, its best year since 2002. That equity and fixed income markets both recorded strong returns in the same year was somewhat unusual, given that strong performance in one asset class typically comes at the expense of the other.Optimism regarding a trade deal between the U.S. and China remained high, as President Trump announced that the two countries will sign their “Phase One” trade deal on January 15. Though the two side agreed on the text of the deal in mid-December, it has yet to be made public, creating some uncertainty as to exactly what has been agreed upon.

In a move to provide further support to the economy, China’s central bank announced a cut to the reserve ratio for banks. The 50 basis points (0.50%) reduction will provide ~$115B of lending support to the economy.

Tensions between the U.S. and Iran spiked following a U.S. airstrike that killed a high ranking Iranian general. Global oil prices rose more than 3%, while the 10-Year Treasury yield fell -0.9% to 1.79%, on fears of a wider conflagration.