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Dow Hits 28,000 as Trade Deal Appears Closer For the week of November 18, 2019

Key Market Data

11/08/2019 11/15/2019 One Week Change YTD One Year
S&P 500 Index 3,093.08 3,120.46 +0.89% +26.69% +16.62%
MSCI EAFE Index 1,976.65 1,976.69 +0.00% +18.95% +13.43%
Barclays Capital U.S. Aggregate Bond Index 2,204.91 2,216.74 +0.54% +8.31% +10.79%
10-year Treasury Note Rate 1.943% 1.832% -11.1 basis points -85.3 basis points -127.9 basis points

Wednesday may have marked the beginning of public impeachment hearings, but investors were arguably more focused on Federal Chairman Jerome Powell’s appearance before Congress, as well as any encouraging news on a trade. Powell’s testimony had a “no news is good news” feel to it, and by week’s end the Dow hit a record high close, 28,000, on word there may be light at the end of the trade war tunnel.

In other news, small business owners remain upbeat, but they’re still having challenges on the hiring front. As we look to the week ahead, we’ll be keeping tabs on a host of data regarding the health of the housing market and digging into the Conference Board Leading Economic Index data, a robust glimpse at the broader health of the economy.

WALL STREET WRAP

Trump on Tariffs, the Fed: Markets, which typically react to the president’s comments on trade, remained stable Tuesday after President Trump railed against the Federal Reserve and shared a few thoughts on trade in a roughly one-hour speech at the Economic Club of New York. Trump defended his tariff policies and said the U.S. was “close” to a deal with China; however, if China doesn’t accept U.S. terms he’s prepared to “substantially raise those tariffs.” On Friday, White House economic advisor Larry Kudlow encouraged markets by saying China and the U.S. were close to a deal and noted discussions between both sides had been constructive. His comments pushed the Dow to a record high on Friday, eclipsing 28,000 points for the first time.

Rates on Hold, Says Powell: In his written testimony for Congress, Fed Chair Jerome Powell on Wednesday stuck to the script he articulated after the central bank cut rates for a third time in October. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market,” Powell stated. “Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly.” Powell dashed calls for the U.S. to follow other central banks around the world and push interest rates into negative territory. He also, again, pushed back on notions that President Trump is exerting political pressure on monetary policy.

Inflation Moves Higher: Inflation rose 0.4 percent in October (it was unchanged in September) as consumers paid more for energy, healthcare, food and other goods. It’s the largest gain in the CPI since March, and now sits at 1.8 percent year over year. The Fed has used its policy tools to steer the economy closer to a 2 percent inflation rate, and as this key metric inches closer to its target, the central bank’s case for holding interest rates steady (see Powell testimony above) grows stronger — especially as trade tensions cool and the economy continues to show strength.

Small Business Optimism Rises: Small-business optimism rose in October as fears about a recession faded, but business owners are having trouble filling positions. Sixty percent of owners surveyed reported trying to hire new workers, but 88 percent of those said they couldn’t find qualified applicants for their open positions. “The economy is doing well given the labor constraints it’s facing,” said NFIB’s Chief Economist Bill Dunkelberg. “Unemployment is very low, incomes are rising, and inflation is low – that’s a good economy.”

Retail Sales Rebound: Consumer spending remains on firm footing heading into the crucial holiday spending season. Purchases at stores, restaurants and online rose 0.3 percent in October after dropping in September. It’s an encouraging sign as consumer strength has helped sustain the growth, and market sentiment, through a year packed with uncertainties about trade and global growth.

THE WEEK AHEAD

LEI: This week we’ll see the release of one of our preferred measures of the overall economy, known as the Conference Board Leading Economic Index (LEI). The LEI combines 10 leading measures of economic activity, such as the S&P 500, consumer confidence, building permits, unemployment levels and more, into a single number that’s a bit like a barometric reading on the economy. Because there are so many indicators, LEI smooths the impact of short-term, temporary volatility in any single metric.

Housing View: Interest rate cuts take a few months to begin trickling through the economy, but one place where you can start to see the effects of easing is in the housing market. This week, we will get a trove of housing data, including housing starts, home sales, builder optimism and building permits. Although it isn’t exactly peak season for home-buying or building, the housing market did show modest gains in September.

Markit PMIs: Finally, this week we’ll also have our eyes the monthly Purchasing Managers Index, which is a survey of 400 purchasing managers in the manufacturing sector. PMI in October rose slightly, from 51.1 to 51.5, which beat market expectations at the time. Another strong read could signal business activity momentum is turning back to the upside, which is good news for the broader economy.

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.