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Markets on Pace for Record-Setting Close to 2019 For the week of December 23, 2019

Key Market Data

12/13/2019 12/20/2019 One Week Change YTD One Year
S&P 500 Index 3,168.80 3,221.22 +1.65% +31.04% +33.20%
MSCI EAFE Index 2,015.62 2,028.25 +0.63% +22.17% +22.74%
Barclays Capital U.S. Aggregate Bond Index 2,228.17 2,221.46 -0.30% +8.54% +9.00%
10-year Treasury Note Rate 1.823% 1.918% +9.5 basis points -76.7 basis points -88.9 basis points

With one full week left in this decade, markets are on pace for a record-setting close to 2019 as geopolitical risks fade, the Federal Reserve takes a breather and solid data continue to show an economy that’s in pretty good condition. The housing market was the stand-out last week, but continued consumer strength pushed stocks to new records to close the week Friday.

This week will be rather quiet, but we’ll check in on a trickle of data and investors will hope to avoid a rerun of Christmas Eve 2018 (the steepest Christmas Eve market plunge ever). We’ll explain why you shouldn’t necessarily anticipate a repeat this year.

WALL STREET WRAP

Full steam ahead for the housing: Housing data collectively knocked it out of the park for the second month in a row. For starters, the NAHB Housing Market Index far exceeded expectations, reaching 76 versus a consensus view of 70 (anything above 50 indicates improving optimism). That’s the highest level of confidence measured by this index since 1999.

Housing starts increased 3.2 percent, building permits grew 1.4 percent. In fact, permits for future home construction surged to a 12-year high. It isn’t all that surprising that housing is on a roll: unemployment is historically low, real wages are rising, interest rates are low, trade spats are receding (for now) and housing supply remains tight. If you’re in the business of building houses, current conditions check most of your boxes.

GDP, consumer data give ‘Santa Rally’ legs: The media next week will no doubt opine about the stock market “Santa Rally” in the closing days of December (as they do every year). However, you needn’t believe in Santa to see what fueled a strong close to last week. Consumer spending rose 0.4 percent from October to November, with spending up 3.9 percent year over year. Personal incomes rose 3.9 percent year over year, third-quarter GDP remained steady at 2.1 percent and consumer sentiment rose in December to its highest level since May.

Markets reached new highs on the heels of these reports Friday, and the economy continues to show strength going into the final days of 2019.

Manufacturing bounce back? New U.S. manufacturing data showed signs that the sector is stabilizing after contracting much of 2019. Industrial production jumped 1.1 percent in November, the biggest gain in more than two years. Keep in mind the production spike was driven by thousands of GM employees returning to work after a strike in October. Still, the sharp rebound suggests the downturn in factories could finally be breaking.

However, momentum could hit a snag in the months ahead as Boeing on Monday announced it would suspend production of its 737 MAX in January as the company wades through problems with the new jet. It’s the largest assembly line freeze at the company in more than 20 years. Although Boeing said it would continue to pay its affected employees, there could be impacts for smaller suppliers down the chain — more than 600 suppliers are involved with 737 MAX assembly. Analysts, for example, are already expecting the production halt to impact cashflows at GE, which produces the MAX engines through a joint venture with Safran SA in France.

China strengthens, Eurozone continues sliding: China’s National Bureau of Statistics showed industrial output for November was 6.2 percent higher year over year, accelerating from 4.7 percent in October. Retail sales in China also rose 8 percent year over year. Economists raised the 2020 growth target for China to 6 percent from 5.7 percent.

Meanwhile, flash manufacturing data (in other words, preliminary) in the Eurozone remained below 50 for the 11th time in a row, falling to 45.9 in December (anything above 50 indicates an expansion). German manufacturing continued to weigh down the index.

THE WEEK AHEAD

A Christmas Eve rerun? We’ve come a long way since the S&P 500 dropped 2.7 percent on Christmas Eve 2018. Last year, investors were grappling with two storms: rapidly escalating trade fears and a hawkish Federal Reserve that looked ready to raise rates into a recession. But this Christmas Eve, investors will enjoy a far different backdrop. Trade fears with China have significantly quieted after both sides reached a phase one trade deal. And, this year, the Federal Reserve will remain on the sidelines after cutting rates three times in 2019. Basically, the two big fears that spooked markets last year have largely faded in the rear view.

Some reports we’re watching: There won’t be much data for investors to digest this week, but we’ll keep an eye out for interesting observations from the Chicago Fed National Activity Index, home sales and business spending.