Stocks rallied in December, closing out a decidedly positive year on Wall Street. The S&P 500 added another 2.86% last month, in large part due to easing trade tensions between the U.S. and China with both nations taking what was characterized as an initial step toward a potentially larger trade accord.
Also, some fundamental economic indicators hinted that the economy might be picking up rather than slowing down. These factors put investors in a buying mood as the year ended. The Federal Reserve left interest rates unchanged, a considerable number of overseas stock markets advanced, and the broad commodities sector fared quite well (1)
“Phase-One” Trade Deal?
After a year-and-a-half of tariffs and stern talk, the world’s two largest economies reached a preliminary and verbal trade pact, which may lead to a larger one in 2020. On December 13, U.S. and Chinese officials stated that a deal had been reached. In short, the phase-one deal calls for China to buy more U.S. crops and provide better protection for U.S. intellectual property, in exchange for reduction and cancellation of some tariffs on Chinese products. Wall Street anxiously awaits this Phase One deal to be signed, sealed and delivered sometime this month.
U.S. Trade Representative Robert Lighthizer told reporters that this phase-one deal would be signed in Washington in January, and President Donald Trump noted that negotiations toward the next phase would start “immediately.” (2)
Last month’s economic data releases were mostly positive, including impressive hiring numbers, wages increasing 3.1% year-over-year, and retail sales rising 3.4% above last year’s holiday season. Consumer spending and sentiment both rose last month, 0.5% and 2.58% respectively. Although these numbers were impressive, these particular economic indicators are “lagging” in nature and give perspective on the current status of the domestic economy and are generally not forward-looking. (3,4)
Activity in America’s factory sector had slowed in November, a bit more than it did in October. The latest manufacturing Purchasing Managers Index (PMI) for posted a reading of 48.1, down 0.2 points from a month earlier. ISM’s November Non-Manufacturing PMI came in at 53.9, as opposed to 54.7 in October; any number above 50 indicates sector growth. These readings are important as they are leading indicators of whether an economy is expanding or contracting. (3)
Looking Forward for the New Year
A phase-one trade pact between the U.S. and China, scheduled to be signed on January 15 in Washington, could reassure stock market bulls into 2020. Any negative changes to the purported agreement between the two countries could cause volatility to spike. Given the numerous false reports we had last year regarding this issue, Wall Street won’t breathe a collectively sigh of relief until the ink is dry on this deal.
With the markets near all-time-highs and interest rates likely remaining low for the time-being, corporate earnings season will be in the spotlight over this next month. With slowing leading indicators such as manufacturing, large-cap U.S. companies must delivery on their earnings reports to reassure investors that our economy is still growing into this New Year. All eyes will also be on the Middle East, as tensions are rising between the U.S. and Iran which could spark some January jitters into the market.
Monthly Financial Tip:
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1 - money.cnn.com/data/markets/sandp/ [12/31/19]
2 - cnbc.com/2019/12/13/china-says-it-has-agreed-to-us-trade-deal-text-indicates-next-step-is-signing.html [12/13/19]
3 - investing.com/economic-calendar [12/31/19]
4 - bit.ly/2tneguU [12/31/19]
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.