Key Market Data
|11/01/2019||11/08/2019||One Week Change||YTD||One Year|
|S&P 500 Index||3,066.91||3,093.08||+0.85%||+25.52%||+12.47%|
|MSCI EAFE Index||1,966.70||1,976.65||+0.51%||+18.83%||+10.38%|
|Barclays Capital U.S. Aggregate Bond Index||2,224.32||2,204.91||-0.87%||+7.74%||+10.60%|
|10-year Treasury Note Rate||1.711%||1.943%||+23.2 basis points||-74.2 basis points||-129.5 basis points|
- The trade gap narrowed 4.7 percent in September from August to $52.45 billion.
- The ISM’s nonmanufacturing index was 54.7 in October compared to September’s reading of 52.6.
- U.S. crude closed the week at $57.24 a barrel; Brent crude finished at $62.51.
The three major stock indexes opened and closed last week by hitting new highs. The records were partly driven by rumors about the trade deal with China, but mostly buoyed by the fact that the economy was still adding jobs, the Federal Reserve has cut its rate three times now, and third-quarter earnings reports continue to be above expectations. Better still, the upswing has not been limited to the United States. While the S&P 500 has now finished up for five weeks straight, Europe’s Stoxx 600 is on a six-week streak, China’s Shanghai Composite is on a three-week run, and Hong Kong’s Hang Seng has been up for the last two weeks. The recent optimism has also had an impact on bonds, with the 10-year yield closing in on 2 percent and ending the week at its highest level since July as some investors have shifted back into stocks.
There are still some clouds on the horizon, however, including the public impeachment hearings that will begin this week and the fact that, during that political drama, the Republicans and Democrats only have until November 21st to figure out how to fund the government—that’s when the latest stopgap spending bill will expire.
The trade talks
With only a handful of economic updates last week, the trade talks took center stage in driving stocks. On Wednesday, stocks fell modestly after Reuters said that phase one of the trade deal might not be signed until December. But stocks soared to record highs on Thursday after a spokesman for China’s Commerce Ministry announced that, as part of the phase one accord, both sides had agreed to roll back some of the tariffs that have been put in place over the last year. The White House pushed back. Peter Navarro, one of President Trump’s trade advisers and a hard-liner on China, sent an email to the media saying that the reports of a mutual rollback were the product of “propagandists within the Chinese government.” He added, “The claims were simply false.”
Then on Friday President Trump told reporters, “I haven’t agreed to anything,” but added, “We’re getting along very well with China. They want to make a deal.” The president also touted how much revenue the tariffs have generated with the Treasury Department having said last week that it had collected a record $7 billion in tariffs from China in September, up 59 percent from a year earlier. As of now, the United States has placed $360 billion in tariffs on Chinese goods during the trade war. The tariff hikes scheduled for October 15th were delayed as part of the current negotiations, but a new round of tariffs on another $156 billion is still scheduled for December 15th. Still, investors seemed to have decided that, whatever the final details of the phase one deal, the fact that the two sides are talking is encouraging and the odds are that some progress will be made, as opposed to further escalation.
The trade gap and consumer spending
There was related news when the government said the trade gap narrowed 4.7 percent in September from August to a five-month low of $52.45 billion. That report was qualified by the fact that imports fell 1.7 percent from the month before, including a 4.4 percent dip in consumer goods, but the trade gap with China fell 4.9 percent to $37 billion. For the first nine months of 2019, the deficit was $481.33 billion, up 5.4 percent from the same period in 2018.
There was positive news about the strength of consumer spending. The Institute for Supply Management said its nonmanufacturing index climbed to 54.7 in October from September’s 52.6. The nonmanufacturing sector accounts for more than two-thirds of GDP growth.
Oil and Saudi Arabia
Saudi Arabia is reportedly set to push fellow OPEC members to make further production cuts when the cartel next meets on December 5th, mainly by getting member countries like Nigeria and Iraq to comply with existing cuts. The next OPEC meeting is less than a week before the recently announced IPO of Saudi Arabia’s oil giant, Aramco, and the cuts are seen as a way for the Saudis to both raise oil prices and demonstrate their clout before the IPO.
Sprint and T-Mobile get the greenlight; Alibaba ready for another IPO
The Federal Trade Commission gave the official go ahead to the T-Mobile, Sprint merger. The move was all but a given since the companies agreed this past July to the FCC’s terms, which included divesting some of their assets. Nonetheless, some states are still bringing a suit to stop the combination, saying it would increase prices for consumers.
Alibaba, the Chinese internet retail giant, said it will have an IPO on the Hong Kong stock exchange later this month. It is looking to raise between $10 billion and $15 billion, which would make it the biggest IPO of 2019, ahead of Uber which raised $10 billion. Alibaba is already listed on the New York and Shanghai exchanges. The listing, which has been delayed by the protests in Hong Kong, will happen sometime after “Singles Day” on November 11th, China’s version of “Black Friday.”
In other news, the Labor Department said that job openings declined by 277,000 to 7.02 million at the end of September, the lowest total in 18 months. Even so, there were still 1.2 million more openings than jobseekers (5.8 million), which had never happened between 2000, when the government started tracking the data, until 2018. Orders for durable goods declined 1.2 percent in September from August; excluding transportation, orders were off 0.4 percent. Orders for factory goods were down 0.6 percent; factory orders ex-transportation declined 0.1 percent. Nonfarm productivity was unexpectedly down 0.3 percent in the third quarter, the biggest drop in almost four years. The preliminary November reading for the University of Michigan’s consumer sentiment index was 95.7 compared to 95.5 for October. And first-time jobless claims for the week ending November 2nd fell 8,000 to 211,000; the four-week moving average was up 250 to 215,250.
A look ahead
This week’s releases will include the latest on small business optimism, the consumer and producer price indexes, consumer comfort, retail sales, industrial production and capacity utilization, and business inventories.
Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.