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Weekly Market Commentary, December 3, 2019

The Markets

Trade negotiators remained primarily responsible for the market yo-yoing up and down in a tight range. Last week, the United States and China both shared positive comments about the status of negotiations toward a “Phase One” deal. Asian economies are more tightly tied to trade than other regions, and economic data from the region remains weak. India’s GDP (Gross Domestic Product) rose only 4.5 percent, down from 8 percent last year. Japan’s industrial production plunged 4.2 percent.

U.S. manufacturers seem to be healing more rapidly. As seen in the accompanying chart, the proxy for business investment rose 1.2 percent last month after a string of declines or very small increases. Increased investment is an early sign of greater demand for manufacturing in the United States.

 

The S&P 500 climbed 1 percent last week, reflecting the positive outlook on a trade deal and the positive economic data. The global MSCI ACWI gained 0.6 percent as the weaker international data limited gains overseas. The Bloomberg BarCap Aggregate Bond Index edged up 0.2 percent as inflation remained firmly under control. November proved to be an attractive month for stock investors. The S&P 500 rose 3.6 percent and the MSCI ACWI gained 2.4 percent. Bonds dipped 0.1 percent.

The U.S. jobs report and any news on trade are likely the two most important events to affect the market this month. Job growth will be boosted by auto workers at General Motors returning to work after a new contract ended their strike.


  

Data as of 11/29/19

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

1.0%

25.3%

14.7%

12.5%

8.9%

11.1%

Dow Jones Global ex-U.S.

0.2

13.7

7.8

6.6

1.7

2.5

10-year Treasury Note (Yield Only)

1.8

NA

3.0

2.3

2.2

3.2

Gold (per ounce)

-0.3

13.9

19.1

7.2

4.1

2.2

Bloomberg Commodity Index

-2.1

0.5

-6.7

-2.9

-7.7

-5.6

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

Big Trends

Thanksgiving is a wonderful holiday for taking a step back and reflecting on some of the bigger things in life. Similarly, this week’s update will detail three steady changes continuing to shape the U.S. economy.

 

Rearranging Energy Usage

If you saw the video of the new prototype truck unveiling, you may have cringed as its shatterproof glass was smashed – twice. But, don’t miss the bigger story of a significantly more fuel-efficient pickup. The trend is moving toward greater energy efficiency throughout the U.S. economy. Energy stocks are only 4.2 percent of the S&P 500. Eight years ago, an oil company was the largest U.S. company. Coal used to be the top fuel for generating electricity. In June, renewables produced more energy than coal for the first time after coal was previously supplanted by natural gas. The U.S. economy continues to rely less on energy than ever before.

 

Online Retail

Black Friday store traffic was down 6.2 percent from last year. Online orders rose nearly 20 percent. The local department stores now do double duty as a warehouse for online orders. One such company sources 80 percent of its online deliveries from local stores. More than 9,300 retail locations have closed this year as business moves online. The move away from malls and physical stores will continue to pressure business models, employment, and real estate development for years to come.

 

Peak Trade

Trade will likely continue to slide compared to the global economy. In the past, the United States was willing to open up to foreign trade to support countries threatened by communism. As the communist threat has faded, the foreign policy benefits of free trade have faded, too. Globalization lasted longer than the Berlin Wall, and, in 2011, trade made up 30.8 percent of total GDP. The ratio has slipped to 27.1 percent and will likely continue to decline. Part of the decline in trade comes from a greater emphasis on services over goods. Services are delivered closer to the customer in most cases. Whatever the cause, trade’s importance to the global economy will likely continue its fall.

 

The week-to-week data is important. Next week’s jobs report provides information about where the economy is now and is likely to head in the near future. The following week, Britain will hold elections that will shape a potential Brexit. These are important events. But, the world keeps steadily changing, and only by stepping back can you see how important those changes are.

 

Fun Story

Christmas Trees and Economics

Christmas trees provide a great lesson in basic economics. Prices for the average tree bounced between $34 and $42 from 2008 to 2014. The financial crisis pushed plantings lower for several years, and the trees from those down years are now being harvested. In addition, some trees from that crop were lost to disease, further limiting supply. But, the economy is much stronger now, and people want real trees. Economics teaches us the rest. Supply is down, demand is up – prices move higher. This year, the average tree is expected to cost just under $80. At least the economics lesson is free.


Sources:

https://www.davebarry.com/misccol/christmas.htm

https://www.cnbc.com/2019/11/30/black-friday-shopping-at-brick-and-mortar-stores-dropped-by-6percent.html

https://www.barrons.com/articles/the-next-best-stocks-to-buy-could-be-small-caps-51575071290?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-02-19_Barrons-The_Stock_Markets_Next_Breakout_Stars-Footnote_3.pdf)

https://www.wsj.com/articles/stocks-edge-down-ahead-of-start-to-u-s-shopping-season-11575023295 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-02-19_WSJ-US_Stocks_Notch_Best_Month_Since_June-Footnote_4.pdf)

https://www.marketwatch.com/investing/bond/tmubmusd30y?countrycode=bx&mod=md_bond_overview_quote (Choose 5-year and YTD time periods at top of chart)

https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/

https://www.cnbc.com/2019/06/26/in-a-rare-occurrence-both-stock-and-bonds-are-having-a-great-year.html

https://www.ubs.com/global/en/wealth-management/uhnw/billionaires-report.html (For the number of billionaires, click on ‘By year’ and choose 2014 and 2018. For the quote, click on download report and go to page 6) (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-02-19_UBS-Billionaires_Insights-Footnote_8.pdf)

https://www.brainyquote.com/quotes/anne_frank_752405?src=t_wealth