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January Economic Update

Market Summary

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)

Economic Releases

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)