Weekly Investment Perspective December 6, 2019

Market Summary:

Despite negative trade headlines that rattled investors early last week, U.S. stocks recovered late in the week due to a robust jobs report that came in well ahead of expectations and indicated a firm footing for the U.S. economy. For the week, the S&P 500 eked out a 0.2% gain, while the Dow and Nasdaq Composite slipped by -0.1% each. Bond yields ticked up with the U.S. 10-year Treasury yield closing the week at 1.84%, up from 1.78% in the week prior, driven by improved optimism on the economic growth outlook.

The U.S. economy added 266,000 jobs in November, blowing past the consensus forecast for 184,000 new jobs, and the prior two month job gains were revised upward by 41,000. The end of the six week General Motors strike accounted for about 46,000 of the month’s gains, but didn’t take away from the impressive beat. Additionally, the unemployment rate dropped back down to match its 50-year low of 3.5% and average hourly earnings growth remained steady at 3.14% year-over-year.

Consumer sentiment data also exceeded expectations on Friday with the preliminary University of Michigan Index of Consumer Sentiment results for December coming in at 99.2 compared to the consensus of 97.0. Strong employment, steady wage growth, and high consumer sentiment indicate a continuation in the positive outlook for consumer spending.

In light of the recent positive economic data, this week’s Federal Reserve meeting is not expected to yield any changes to the current stance in monetary policy. Instead, trade tensions will remain at the forefront of most investors’ minds, as the December 15th deadline is looming, at which point a significant increase in tariffs on China is set to be imposed by the U.S. without a new agreement. China’s exports shrank for the fourth consecutive month in November, sending a concern to the markets about the continued damage occurring to world trade.

Meanwhile in Europe, there are some significant events on the docket this week including the first European Central Bank policy meeting under the new leadership of Christine Lagarde and a crucial general election for the U.K. Parliament that will determine the fate of Britain’s exit from the European Union.

Economic Highlights

  • Service Sector: The U.S. non-manufacturing ISM reading fell by 0.8 in November to 53.9, which was below expectations of 54.5, but the index remains in expansion territory (above 50). A drop in business activity led the fall, but new orders and employment were solid as the private service sector continues to see the bulk of the nation’s job gains.

  • Oil: WTI crude oil prices rose to $59.20 per barrel last week, a 1.9% increase, on news that OPEC and its allies agreed to deepen production cuts in the first quarter of 2020.

US Economy – The Week Ahead

Tuesday, 12/10/2019

  • NFIB Small Business Optimism Index – Actual: 102.8 (0.4% MoM), Prior Month: 102.4 (0.6% MoM)
  • U.S. 3Q 2019 Labor Productivity Quarter-over-Quarter (Final) – Consensus Estimate: -0.1%, Prior Quarter: 2.3%

Wednesday, 12/11/2019

  • Federal Open Market Committee (FOMC) meeting – Consensus expectation for no change in interest rates
  • U.S. Consumer Price Index (CPI) Year-over-Year – Consensus Estimate: 2.0%, Prior Month: 1.8%

Thursday, 12/12/2019

  • Initial Jobless Claims – Consensus Estimate: 212,000 (4.4% WoW), Prior Week: 203,000 (-4.7% WoW)
  • U.S. Producer Price Index (PPI) Year-over-Year – Consensus Estimate: 1.2%, Prior Month: 1.1%

Friday, 12/13/2019

  • Retail Sales (Month-over-Month growth) – Consensus Estimate: 0.5%, Prior Month: 0.3%