Market Update: December 11, 2019
Market Update: December 11, 2019

Market Update: December 11, 2019

 

By:

Kevin Rice
Kevin Rice
Investment Analyst
Meet Kevin →
 

Related:

 

Share:

Market Update: December 11, 2019

TC on the Markets

Market Commentary

In November, U.S. equity markets continued to reach new highs as trade talks progressed and better-than-expected economic news encouraged investors. Equity markets consistently appreciated throughout the month, with reduced volatility as the CBOE Volatility Index fell to a level not seen in more than a year and a half. As the domestic economy continues its record-breaking expansion, the Federal Reserve (Fed) is optimistic that the expansion will continue and remains committed to step in as necessary to foster growth. Earnings season ended in November, with S&P 500 companies reporting broadly flat earnings relative to the third quarter of last year. Overall, around 80% of companies beat earnings estimates for the quarter – albeit estimates that had been lowered throughout the year.

Domestic and International Markets

At the end of November, the S&P 500 was up 3.63% for the month and is now up 27.63% in 2019 (Exhibit 1). U.S. equities hit another all-time high on November 27th. International equity markets underperformed relative to their domestic counterparts, as the MSCI ACWI ex. U.S. Index returned 0.90% in November. Emerging markets equities underperformed international developed equities, with the MSCI EM Index declining 0.13%. Performance of global markets have been buoyed by the accommodative policies of many central banks around the world and a growing belief that the global economic cycle is bottoming.

Exhibit 1 Source: TC Wealth Partners, Morningstar

Fixed Income Markets

During the month, the U.S. Treasury yield curve steepened following a Federal Reserve rate cut late in October, which brought the short-end of the curve lower, while the longer-end inched up during the month. The 3-month T-bill yield ended November at 1.59% and the 10-year Treasury yield increased to 1.78%. The increase in yields caused the Bloomberg U.S. Aggregate Bond index to return 0.05% and is now up 8.79% this year. Unless the economy shows signs of further slowing, we believe that the Fed will not announce another rate cut after their meeting in December.

Trade

U.S. and China trade negotiations continue to remain the greatest wild card for the markets. While a “Phase 1” agreement between the two countries was not executed in November, the baseline expectation is that a deal will be reached before the next tariffs go into effect on December 15th. However, as we’ve learned on multiple occasions in 2019, particularly in May and August, there is an unpredictable element to these negotiations. A tweet from the president has led to multiple market corrections, and quick reversals, leading us to believe a postponement in a trade deal until 2020 could spark another correction before year end.

Fed Reserve

During the October 30th meeting the Fed made it clear that their interest-rate policy would be on hold for the foreseeable future barring “a material reassessment of their outlook,” according to Fed Chair Jerome Powell. During a mid-November appearance before Congress, Powell reiterated this position while mentioning a relatively strong jobs market and strong income growth. He also seemed to set the bar higher for the next rate hike with regards to inflation. Since the Fed has not seen any signs of inflation the Fed funds futures market is now forecasting another rate cut over the next 12 months.

Recession Outlook

Throughout 2019, recessionary fears bubbled up amid continued Brexit delays, an unresolved trade war and numerous other tensions around the world. Yet, the stock markets powered ahead, and economic data remained generally sound. Economic data in the second half of 2019 showed softening in the manufacturing sector partly tied to trade issues. On the other hand, the consumer has proven much more resilient. We believe that as we move into 2020 the economy will continue to grow, and the U.S. is unlikely to enter a recession in the year ahead.

Thanksgiving Market Facts1

  • The stock market has historically done well after Thanksgiving. Since 1950, the average return in December has been 1.5%, with the market logging a post-holiday gain in 81% of those years. When the market rose between Thanksgiving and year-end, it went on to deliver a positive return the next year 77% of the time.
  • In the last 70 years, the market has come into Thanksgiving with a year-to-date gain of 20% or more 18 times, including this year. The average return in the following year was 16%.
  • A National Retail Federation (NRF) survey showed that, on average, consumers have already completed 24% of their planned shopping, compared with 16% at this same time 10 years ago.
  • There have been 16 years since 1950 when unemployment was below 4.5% at Thanksgiving time.
  • 1 Source: Edward Jones, Weekly Market Update, 11/29/2019

 
 

Tags:  Consumer Confidence Index, December 2019, Domestic and International Markets, Federal Reserve, Fixed Income Markets, Manufacturing Index, Market Update, Nonfarm Payrolls, Recap for November 2019, Recession Indicators, S&P 500, TC on the Markets, The Fed, Trade, Yield Curve

Note:  The content of this article is for guidance and information purposes only and is not intended to be construed as advice. Information provided is not intended to provide investment, tax, or legal advice.