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December Economic Update

Market Summary

The stock market continued to rally last month with the S&P 500 rising 3.4% and setting new all-time highs. Many economic indicators remain mixed with job creation and consumer spending inspiring the market rally, but waning consumer confidence and declining business activity yielding concerns for some investors. (1)

Escalations with China

Tensions rose recently between the U.S. and China days after there were reports that a “phase one” trade deal was nearing completion. Last week, a senior White House official told Politico that the U.S. was “millimeters away” from a phase-one trade agreement with China, a deal which might involve the removal of certain tariffs.

This good news was followed by President Trump signing two bills into law backing pro-democracy demonstrators in Hong Kong, a move which infuriated the Chinese regime. Hong Kong has been in the spotlight as protesters revolt against proposed extradition laws. China has openly blamed the U.S. for interfering with these matters, and the President’s endorsement of the protesters did not help to ease the situation. (2)

The Chinese Ministry of Foreign Affairs quickly reacted, stating that American lawmakers had “sinister intentions” and that China would take “strong counter-measures” in return. The President recently stated that a trade deal might be on hold until after the U.S. elections in 2020. Needless to say, the markets have reacted negatively since these matters unfolded, but we still remain near the all-time highs in the S&P 500 and Nasdaq.

Economic Indicators

In other China news, there were recent indications that the country’s economy had slowed for a seventh consecutive month, and China’s third-quarter GDP reading was its poorest in nearly 30 years. Through October, profits at Chinese industrial companies were down 9.9% year-over-year, a record annualized dip, and an index of business confidence hit a 14-month low. (4)

The U.S. had some positive economic news with retail sales rising 0.3% for the month of October, in addition to the National Retail Federation forecasting a year-over-year gain between 3.8% and 4.2% for the upcoming holiday season. If its prediction comes true, this holiday season could rank among the top of the decade. (5)

There was some mixed data from the real estate front. The pace of home buying accelerated during October with existing home sales advancing 1.9% in October, partly reversing a 2.5% September setback. However, new home sales declined 0.7%, which was a stark retreat when compared September’s healthy 4.5% gain. (6)