Happy Thanksgiving! After a few weeks where growing hopes of a U.S.-China trade deal propelled markets higher, the opposite occurred last week. Trade negotiations took a small step backward, and global stocks followed. Other global economic news was generally positive. The U.S. manufacturing sector seems to have bottomed and is returning to growth. European data showed manufacturing remains weak but also indicated the damage trade is having on manufacturing is starting to slow.
U.S. homebuyers continued to take advantage of low interest rates as 8.2 percent more single-family homes were started last month compared to a year ago. As the accompanying chart shows, single-family home starts have picked up in recent months, while construction of multifamily homes (apartments) have slowed. The growth in multifamily housing coincided with the financial crisis and has remained at elevated levels. Single-family home growth is one indicator first-time homebuyers are starting to form households and potentially expand their families. Kids and bigger houses both support the economy.
The S&P 500 dipped 0.3 percent last week. The global MSCI ACWI also dropped 0.3 percent. The Bloomberg BarCap Aggregate Bond Index rebounded 0.3 percent as slowing trade pushed economic growth down and lowered the yield on fixed-income investments.
Next week’s economic data schedule is light as the Thanksgiving holiday will delay some data points. The U.S. durable goods report on Wednesday will provide additional information on whether manufacturing continues to recover. Asia is very reliant on trade, and data from Japan, China and India will provide insight into how those countries are adjusting to the new trade environment.
Data as of 11/22/19
Standard & Poor's 500 (Domestic Stocks)
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
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.
Manufacturing Recovery while the Consumer Slows
There will likely be a reversal in the trend of weak manufacturing data contrasted with strong consumer data. Manufacturing has borne the brunt of the trade challenges as lower demand from overseas has been coupled with uncertainty in the U.S., delaying business investment.
Because business investment often takes the form of new buildings, additional equipment or additional technology hardware, the slowdown in manufacturing has been broad-based. But slowdowns in capitalism are often overwhelmed by a natural trend toward creativity, problem-solving and growth. Businesses all over the world are adapting to the new trade rules and coming up with solutions. The economy has reached the “heal or deal” stage — either the economy will start to heal or a deal will be reached.
Consumers have been protected from the manufacturing and trade slowdown by a strong demand for labor, leading to low unemployment and steady wage growth. The strong employment market has been supported by an underlying strength in the services markets. Manufacturers often ship all over the world. Services are more localized, and the weakness overseas has been slow to affect the U.S. economy. Eventually, though, the weakness in manufacturing will spread to the rest of the economy. Expect job growth to slow down in coming quarters and wage growth to moderate, too. Growth is still expected to be positive, just not as robust as in recent quarters.
Even if a trade deal is signed, the recovery will take a while to affect the broad economy in the same way the slowdown has taken some time to work its way through the system.
This news may lead to concern about how the market might react. There are definitely risks. But investors should recall stock markets do not focus on past, or even current, data. Instead, they focus on the future. So, don’t be surprised if during a period of slowing economic growth, the market turns higher.
Apologies for sending an academic article, but the topic seemed appropriate. Researchers suggest being thankful for our material blessings is hard because money doesn’t make us happy. Some of you may be celebrating the good news because you think it shows people are more focused on important things, such as family, friends, experiences, and spiritual connection. Unfortunately, the news points in the opposite direction. These researchers found people were happier with having more money when it allowed them to pass someone else on the income list. It is a good reminder as to why we need a national day of Thanksgiving.
https://www.barrons.com/articles/dow-jones-industrial-average-snaps-four-week-winning-streak-51574469902?mod=hp_DAY_3 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-25-19_Barrons-The_Dows-Winning-Streak-Ended-With-a-Whimper-as-Trade-Worries-Return-Footnote_1.pdf)
https://www.ft.com/content/0d445fe2-0c60-11ea-b2d6-9bf4d1957a67 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-25-19_FinancialTimes-Investment-Outlooks-Hinge-on-Deciphering-Conflicting-Signals-Footnote_2.pdf)
https://www.cnbc.com/2019/11/18/the-bond-phenomenon-of-2019-isnt-over-yet-says-trader.html (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-25-19_Barrons-The-Bull-Market-Could-Still-End-in-2020-Here's-How-to-Prepare-Footnote_3.pdf)