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  • January 21, 2020

Week in Review

Week Ending: Friday, January 17, 2020

Recap & Commentary

Equity markets continued their steady advance with the S&P 500 setting four new record highs during the week. Not to be outdone, the technology-heavy NASDAQ Composite set its eighth consecutive record high, in as many trading sessions, on Friday. Upbeat U.S. and Chinese economic data, and the signing of the Phase I trade deal between the two countries, helped propel markets.

On Wednesday, the U.S. and China signed their much anticipated “Phase One” trade deal. Certain details remain vague and there is skepticism about China’s ability to satisfy certain pledges, particularly regarding agricultural purchases. However, markets took an optimistic view that the signing marks a significant reduction in tensions and will allow for greater certainty moving forward.
China reported 4Q19 GDP growth of 6.0%, bringing full-year 2019 growth to 6.1%. That was markedly slower than the 6.6% growth recorded in 2018 and the slowest pace since 1990. Economists are guardedly optimistic about China’s 2020 growth following the signing of the trade deal, an uptick in December’s economic data, the first increase in investment since June, and the government's continued commitment to supporting growth.

Through Friday, 9% of S&P 500 companies had reported earnings, with 72% beating their consensus estimate. Earnings headlines for the week were dominated by many of the large money-center banks which generally reported strong earnings growth. With respect to the broader economy, JP Morgan CEO, Jamie Dimon, stated that “the US consumer continues to be in a strong positions” and that global growth has “stabilized, albeit at a lower level”. The current consensus forecast for 4Q19 earnings growth is -2.1% Y/Y.

Economic Bullet Points

The Consumer Price Index (CPI) increased 0.2% in December, and core CPI, which excludes food and energy, edged up 0.1%. On a y/y basis, both measures have risen a subdued and contained 2.3%.

The Producer Price Index (PPI) edged up 0.1% in December at both the headline and core levels. On a y/y basis, headline PPI increased 1.3%, while core PPI slid to 1.2%. Notably, both measures peaked in Q4 2018 and have been trending downward since, as price pressures have moderated.

Retail Sales increased by 0.3% in December, matching the consensus. On a y/y trend basis, retail sales were up 4.1%, the most since November 2018, but slightly below the average 4.3% gain per annum over the past decade.

Industrial Production fell -0.3% in December, down in three of the past four months. It fell at a -0.5% annual rate in Q4, and it was also down -1.0% from a year ago, the most since October 2016.

Housing Starts jumped 16.9% in December, the most since October 2016, to a 1.608 million unit annual rate, the highest level in 13 years.

Small Business Optimism fell 2.0 points in December but remains elevated.

Of Note

The U.S. Treasury plans to restart issuance of 20-year bonds later this year. The U.S. previously issued 20-year bonds but stopped in 1986.

Market Indices Week of 1/17

S&P 5002.0%
Small Caps2.5%
Intl. Developed0.9%
Intl. Emerging1.2%
Commodities-1.1%
U.S. Bond Market0.1%
10-Year Treas. Yield1.82%
US Dollar0.3%
WTI Oil ($/bl)$59
Gold ($/oz)$1,557

The Week Ahead

  • Leading Economic Index
  • Existing Home Sales
  • Jobless Claims

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