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  • January 6, 2020

Week in Review

Week Ending: Friday, January 3rd, 2020

Recap & Commentary

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.

Economic Bullet Points

The trade balance in goods narrowed for the third consecutive month. Forecasted at $68.7B, the actual deficit was $63.2B, the smallest in three years.

The Case-Shiller Home Price Index rose 2.2% from the prior year, the second consecutive monthly gain. The increase was broad-based, with only one of the 20 cities included in the index recording a decline, and added to evidence that the housing sector continued to improve during the fourth quarter.

Consumer Confidence missed consensus expectations, falling for the fourth time in five months. The decline was largely driven by decreased future expectations regarding the availability of jobs and growth in income. Despite the miss, the headline number remains near record highs.

U.S. manufacturing activity, as measured by the ISM Manufacturing Index, fell to its lowest level since June 2009. December’s reading marked both the fifth consecutive monthly decline and fifth consecutive month of contraction. Weakness was broad-based, with nearly all sub components showing deterioration. New orders fell to their lowest level in a decade, while employment fell to its lowest level since the start of 2016. While the successful completion of a trade deal would help, it is unlikely to immediately improve the overall fortunes of the manufacturing sector.

Of Note

Minutes from the Fed’s December FOMC meeting indicated that officials now expect rates to remain unchanged in 2020. Following the September meeting, expectations were for rates to increase slightly in 2020.

Market Indices Week of 1/3

S&P 500-0.2%
Small Caps-0.5%
Intl. Developed0.0%
Intl. Emerging0.5%
Commodities0.1%
U.S. Bond Market0.4%
10-Year Treas. Yield1.79%
US Dollar0.0%
WTI Oil ($/bl)$63
Gold ($/oz)$1,549

The Week Ahead

  • Trade Balance
  • ISM Services
  • Factory Orders
  • Employment Report

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