Market Summary
U.S. equities closed out November on a positive note last week despite some concerns that U.S. support for Hong Kong’s anti-Beijing protesters could negatively impact trade negotiations between the U.S. and China. For the week, the S&P 500 finished up 1.0%, while the Nasdaq Composite and Dow climbed 1.7% and 0.8%, respectively. All three indices gained over 3% for November, notching the best monthly performance since June. Outside the U.S., equity performance was a bit more stagnant in November, albeit still positive, with a 1.0% total return for the month for the MSCI All-Country World index (excluding the U.S.).
The holiday shopping season has kicked into high gear following Thanksgiving and investors will be watching its progress closely as U.S. consumer spending has been the key driver of U.S. economic growth. Early indications of holiday spending have been solid as Black Friday and Cyber Monday sales have hit new records this year. According to preliminary estimates from Adobe Analytics, which tracks the web transactions of 80 of the top 100 retailers, online sales climbed 22.3% and 18.9% compared to 2018 for the two major retail days, respectively. Brick-and-mortar retailers, however, are expected to show much more modest growth compared to e-commerce for the holiday season.
On the back of strong consumer spending, U.S. GDP growth for the third quarter was revised upward last week to an annualized 2.1% rate from the first preliminary estimate of 1.9% with much of the adjustment coming from stronger inventory investment. The consumer spending component (roughly 70% of total GDP) logged a 2.9% annualized growth rate.
In the week ahead, market participants will get important updates on the status of the service sector and employment. Meanwhile, trade tensions will continue to be a significant underlying force. Early week trading has started out in negative territory due to disappointing manufacturing data and trade headlines including President Trump’s unexpected decision on Monday to reimpose steel and aluminum tariffs on Brazil and Argentina. Separately, the U.S. has threatened to impose tariffs on France in response to a new French tax regime on digital revenues that will hit big U.S. tech firms.
Economic Highlights
Inflation: The Personal Consumption Expenditures (PCE) index, which is the Federal Reserve’s primary inflation gauge, continued to fall short of the Fed’s 2.0% inflation target in October as the reading slipped to 1.59% year-over-year.
Oil: Crude oil prices fell sharply last week by -3.9% as fears of excess supply resurfaced. The drop broke off a 4 week streak of consecutive gains in the price of oil, but oil prices still rose 1.8% for the month. The Organization of the Petroleum Exporting Countries (OPEC) and its allies are expected to agree to continue curbing supply growth at a meeting in Vienna this week to correct the oversupply that is weighing on prices.
US Economy – The Week Ahead
Tuesday, 12/3/2019
- No data
Wednesday, 12/4/2019
- ISM Non-Manufacturing PMI – Consensus Estimate: 54.5 (-0.4% MoM), Prior Month: 54.7 (4.0% MoM)
- ADP Employment Survey – Consensus Estimate: 143,500, Prior Month 125,000
Thursday, 12/5/2019
- Initial Jobless Claims – Consensus Estimate: 217,000 (1.9% WoW), Prior Week: 213,000 (-6.6% WoW)
Friday, 12/6/2019
Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.0%, Prior Month: 3.0%
U.S. Unemployment Rate – Consensus Estimate: 3.6%, Prior Month: 3.6%
Nonfarm Payrolls Added – Consensus Estimate: 186,500, Prior Month: 128,000
University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 96.8 (0% MoM), Prior Month: 96.8 (1.4% MoM)
