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Weekly Economic Update

U.S. STOCKS DECLINE MODESTLY, SNAPPING SIX CONSECUTIVE WEEKS OF GREEN NUMBERS

  • The U.S. equity markets paused this week, retreating modestly after six weeks of impressive gains
  • NASDAQ declined just 0.2%, followed by the S&P 500’s drop of 0.3%
  • The smaller–cap Russell 2000 and the mega–cap DJIA both declined this week too, as both indices lost 0.5%
  • Large–cap, developed international markets also moved down, with the MSCI EAFE Index losing 0.7%
  • The week started off well as the larger–cap indices hit record highs again on Monday, but then it appeared as if the markets couldn’t really find footing one way or the other, before coming to rest in the red and snapping six consecutive weeks of gains
  • While the major market indices didn’t lose more than 1%, the same couldn’t be said for some of the S&P 500 sectors, as Materials and Real Estate dropped 1.7% and 1.2%, respectively
  • Health Care moved up 0.8%, followed by Financials and Utilities with moves up of 0.5% and 0.2%, respectively
  • China trade conversations and hopes that a truce will be reached before the end of the year hung over the market all week, as has been the case for most of the past year and a half
  • The U.S. Treasury market experienced some curve–flattening movement as the 2–year Treasury yield increased to 1.63% and the 10–year declined to 1.77%
  • The U.S. Dollar Index increased 0.3%
  • WTI crude increased 0.2% to $57.88

Weekly Market Performance

*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 Trade Worries Creep Back into the Worry Column

Stocks started the week well and hit new record highs, but then trended lower on the week as worries that a China Phase One trade agreement would not happen before the annual calendar turns.CHINA WORRIES

There were really two new topics this week between the U.S. and China that caused Wall Street to worry some more. First, Reuters reported that White House insiders are suggesting that there are new demands from both the U.S. and China, putting the likelihood of a Phase One agreement being reached before the end of the year as unlikely. And when asked, President Trump told reporters that the Chinese were not “stepping up to the level that I want.”

The second topic was Hong Kong, which has been dealing with violent protests for some time. On Tuesday, the Senate passed the Hong Kong Human Rights and Democracy Act, which would levy sanctions on those Chinese officials responsible for punishing protesters. A Chinese foreign ministry spokesperson suggested that “strong countermeasures” would be the result if President Trump signed the bill.

As of Friday’s market close, President Trump had not signed the bill, but he did say that “we have to stand with Hong Kong, but I’m also standing with President Xi.” That was seen by many as an olive branch to the Chinese.

Earnings Season is Over

After a Q3 earnings season that was better than most analysts expected, research firm FactSet compiled a few interesting anecdotes:

  • The S&P 500 reported a decline in earnings (2.2%) for the third straight quarter
  • 85 S&P 500 companies issued negative EPS guidance for Q3 – tied for third highest number since 2006
  • 75% of S&P 500 companies reported actual EPS above estimated EPS for Q3 – above the five–year average of 72%
  • The Utilities sector reported the highest earnings growth of all 11 S&P 500 sectors at 10%
  • The term “tariff“ was mentioned at least once during the earnings conference calls of 117 companies

Small Caps Outpacing Larger Caps

Market historians are quick to point out that small–cap stocks generally outperform in the earlier stages of a bull market and typically lag their large cap counterparts toward the tail–end of a bull market.

And interestingly, small–cap stocks have been outpacing large–caps lately, possibly signaling that the current bull market might have some more legs.

Stocks Overseas Mixed

Equity markets on the other side of the Atlantic Ocean were mostly down, as the U.S.-China trade saga is hanging over markets outside our borders too. For the week:

  • The pan–European STOXX Europe 600 Index lost 0.3%
  • The German DAX was off 0.5%
  • The UK’s FTSE 100 Index gained 0.5%
  • The Nikkei 225 Stock Average fell 0.8%
  • The Shanghai Composite Index declined 0.2%
  • The large–cap CSI 300 Index, which follows large–caps on the Shanghai and Shenzhen exchanges, fell 0.7%

Sources

factset.comstandardandpoors.comnyse.commsci.comnasdaq.comdowjones.commorningstar.comedwardjones.combloomberg.com

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