Weekly Market Update — January 3, 2020

• The U.S. stock markets inched down during the final holiday-shortened week of 2019, ending their recent win streak but still capping off a remarkable year
• On the week, NASDAQ inched up 0.2% whereas the S&P 500 and the DJIA declined 0.2% and 0.4%, respectively
• The smaller–cap Russell 2000 continued to underperform its larger-cap counterparts and dropped 0.5%
• The week brought investors little market news, but started out on a positive note when China announced it would cut the reserve requirement ratio for banks by 50 basis points, which will provide an additional $115 billion in liquidity for lenders
• Speaking of China, President Trump said the Phase One trade deal will be signed at the White House on January 15th and that he will soon visit Beijing for Phase Two talks
• The week ended amidst some end of the year profit-taking and worries after the U.S. airstrike in Iraq killed Iran\’s top military leader, General Qasem Suleimani
• The ISM Manufacturing Index for December was released and it dropped to its lowest level since June 2009
• U.S. Treasuries ended the week higher, as the 2–year yield fell to 1.51% and the 10–year yield fell to 1.79%
• The U.S. Dollar Index finished unchanged
• WTI crude rose 2.1% to $63.03/barrel

Stocks Mixed on Final Week of 2019

U.S. equity markets paused during the final week of 2019, celebrating the holidays with mixed results after markets around the world generally pulled back following the U.S. attacks in Iraq.

As has been the case almost all year, the technology-laden NASDAQ outperformed the DJIA and the S&P 500, pushing its 2019 return north of 36% and leaving the S&P 500\’s 2019 return just shy of the 30% threshold.

Technology shares led the way this week, pushed by a jump in Apple to record highs. Not unexpectedly, value stocks lagged growth shares by a significant margin. Also, as has been the case most of the year, the smaller–cap Russell 2000 Index continued its underperformance.

The market was closed Wednesday for the New Year’s Day holiday.

Phase Two Deal with China Starting Soon

Stocks started the short week on a positive note, given the news about the ongoing China/U.S. trade saga. Early in the week, President Trump announced that the U.S. would sign the Phase One trade agreement at the White House on January 15th.

Further, he announced that he would be heading to Beijing to start working on a Phase Two deal. While both were somewhat expected, the market breathed a collective sigh of relief as the squabble between the two countries appears to be heading towards a resolution.

China\’s Central Bank Cuts Rates

In China, Chinese stocks recorded their fifth weekly gain after an announcement of the Phase One signing schedule and after China\’s central bank lowered the amount of cash that lenders must hold in reserve.

On Wednesday, the People\’s Bank of China announced it would cut the reserve requirement ratio by 50 basis points, effective January 6th. The announcement is the eighth time that the People\’s Bank of China has cut rates since early 2018.

For the week, the benchmark Shanghai Composite Index leapt 2.6%, while the large, blue-chip CSI 300 Index leapt, even more, adding 3.1% on the week.

But the U.S. Airstrike Caused a Small Flight to Safety

The U.S. airstrike on Iranian military leader Suleimani derailed the holiday cheer felt by investors as worries that tensions in the Middle East would escalate quickly. As often happens during such uncertain times, there was a brief flight to safety as both oil and gold witnessed a jump in prices.

In addition, Treasury yields dropped, as Treasuries are considered by most as even safer, and dropping Treasury yields pushed financial shares to underperform. The yield on the 10–year Treasury decreased from 1.92% on Monday to 1.79% at the close of trading Friday, pushing it to its lowest level in almost three weeks.

Little Economic Data on the Week

While all eyes were focused on tensions in the Middle East, the Institute for Supply Management reported that U.S. manufacturing activity declined in December and hit a new 10–year low. The ISM gauge has now declined for five consecutive months, and weak manufacturing data is casting an overall pall on investor sentiment.

Sources

ism.com; standardandpoors.com; factset.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com