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Weekly Economic Update – November 17th, 2019

STOCKS UP FOR SIXTH WEEK IN A ROW ON HOPES OF A CHINA TRADE DEAL COMING SOONER RATHER THAN LATER

  • U.S. stocks reached another record high, as the major indices rose for the sixth straight week, which is the longest winning streak in two years
  • The DJIA led the way this week by rising 1.2%, followed closely by the S&P 500’s move of 0.9% and NASDAQ’s increase of 0.8%
  • The S&P 500 crested that ceremonial 3,000–point barrier and the DJIA moved north of its own psychological 28,000–point threshold
  • The smaller–cap Russell 2000 was left out of this week’s rally as it lost 0.2% on the week
  • It was a relatively calm week as the markets steadily moved into record territory on 4 days, with most of the week’s gains coming on Friday on the heels of more news about a potential agreement with China
  • On Friday, NEC Director Larry Kudlow said a Phase One trade agreement was close to being reached and President Trump said the same thing in a prepared speech
  • The defensive–oriented sectors led the way this week, in a reversal from the prior week, as Health Care jumped 2.4%, Real Estate climbed 1.9% and Utilities moved up 1.5%
  • Energy led the losers again this week, as it dropped 1.3%
  • The 2–year U.S. Treasury yield declined to 1.61% and the 10–year yield declined to 1.83%
  • The U.S. Dollar Index declined 0.4% to 97.99
  • WTI crude increased to $57.75/barrel

Weekly Market Update

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

China Continues to Impact Markets

While trade negotiations with China have been all over the board for the better part of the past two years, the feelings at the moment are that a partial trade–deal could be reached sooner versus later. And that sentiment has driven U.S. markets to new highs, especially over the past month. This week it was White House Economic Adviser Larry Kudlow telling reporters that negotiators were coming down to “short strokes” that helped push investor sentiment – and the markets – to new highs.

CHINA IMPACT

The concentrated and mega–cap DJIA and more broadly diversified, but still large–cap S&P 500 Index both hit record highs this week, as did the tech-laden NASDAQ Index. Interestingly, the smaller–cap Russell 2000 Index lagged the larger–cap indices and ended the week slightly down.

While investors are hopeful that a China agreement will come soon, there is an undercurrent of worry with Hong Kong.

Hong Kong Remains a Worry

After months of protests, Hong Kong’s rule of law has been pushed to the “brink of total collapse,” according to the Hong Kong police.

Fierce fighting between riot police and Hong Kong protesters continues to rage as anti–government demonstrations take a violent turn. Streets are littered with bricks, street fires are burning, schools are closing, tear gas is being fired, riot police are using rubber bullets and one young man was shot in the chest with a real bullet.

HONG KONG

The violence in Hong Kong has clearly affected Asian markets and that has spilled over to markets around the world – a little bit. Wealthy residents in Hong Kong are beginning to take their money elsewhere, global companies are thinking about their exposure to Hong Kong and investors around the world appear to be taking a risk-off approach when it comes to Asian markets.

But the U.S. Markets are the Mirror Opposite of Hong Kong

While there is chaos in Hong Kong, and there continues to be drama in the U.S., the U.S. markets are acting surprisingly calm.

Consider this:

  • Last week, we reached four daily record highs
  • In 2019, we have reached 22 new daily record highs
  • Of the S&P 500’s 24.5% gain in 2019, 7% has come in the past six weeks (in other words, take out the past six weeks and the S&P 500’s YTD return would be 17.5%)
  • The VIX, also known as the “investor-fear index,” is trending toward its lowest level of the year

This Rising Tide is Lifting All Sectors

The S&P 500’s 24.5% YTD gain has pushed all 11 of the S&P 500 sectors into positive territory. And the disparity among the sectors is very big.

Look at these numbers:

  • Information Technology leads all sectors with a 40.53% YTD gain
  • The Energy sector is the worst performer with a 3.86% YTD gain
  • 10 of the 11 sectors have enjoyed double–digit YTD gains
  • 7 of the 11 sectors are up more than 20% YTD, with Materials close to that with a 19.49% YTD gain

Sources

cboe.comfactset.comstandardandpoors.comnyse.commsci.comnasdaq.comdowjones.commorningstar.comedwardjones.combloomberg.com

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