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Weekly Update

Market Summary

U.S. equities closed lower for the fourth time in the past five weeks as constructive geopolitical progress was not enough to overcome negative investor sentiment from indications of slowing global economic growth. For the week, the S&P 500 and the Dow each lost -1.2% compared to a loss of -0.8% for the NASDAQ. The three indices are now in correction territory as they are all down over 10% from their peaks earlier this quarter. U.S. Treasury bond prices ended the week slightly higher as more investors cycled out of equities, and the yield curve remains flat with just a 0.15% spread between the yields of the 2-year and 10-year Treasury notes.

Disappointing economic data from China and the Eurozone were the primary culprits in poor equity market performance this past week. In particular, China’s retail sales and industrial production continued to slump lower, falling below expectations, as trade tensions continue to weigh heavily on the economy. Meanwhile, the European Central Bank announced that it was formally ending its three-year, €2.6 trillion monetary stimulus scheme and cut its economic growth forecasts amid heightening uncertainty.

The further deterioration in China’s economic growth outlook has increased the urgency of trade negotiations with the United States. Several reports have cited China’s agreement to several concessions including a reduction in tariffs on U.S. autos, a resumption in U.S. soybean purchases, and a pursuit of tougher restrictions on intellectual property theft.

Looking at the week ahead, market participants have high anticipation for Wednesday’s Federal Reserve meeting on monetary policy. The vast majority expect a 0.25% rate hike, but all will be listening closely to discussions of monetary policy for 2019 for hints of a pause in the current pace of tightening.

Economic Highlights: 

Inflation: The U.S. Consumer Price Index (CPI) held steady at 2.2% year-over-year in November as a sharp decline in gas prices offset rising rent and healthcare costs.

Retail Sales: U.S. consumer spending remains on strong footing going into the holiday season as retail sales rose at a higher than expected clip with a 0.2% increase over October. E-commerce retailers showed the greatest strength with a 2.3% increase for the month.

US Economy – The Week Ahead

Tuesday 12/18/2018

  • Housing Starts – Consensus Estimate: 1,230K (0.2% MoM), Prior Month: 1,228K (1.5% MoM)
  • Building Permits – Consensus Estimate: 1,265K (0% MoM), Prior Month: 1,265K (-0.4% MoM)

Wednesday 12/19/2018

  • Federal Open Market Committee (FOMC) Meeting – Consensus expectation for a +0.25% rate hike
  • Existing Home Sales – Consensus Estimate: 5,200K (-0.4% MoM), Prior Month: 5,220K (1.4% MoM)

Thursday 12/20/2018

  • Initial Jobless Claims – Consensus Estimate: 220,000 (6.8% WoW), Prior Week: 206,000 (-10.8% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: +0.1%, Prior Month: +0.1%

Friday 12/21/2018

  • U.S. Third Quarter GDP Growth Year-over-Year (Final) – Consensus Estimate: 3.0% (3.5% QoQ), Prior Quarter: 2.9% (4.2% QoQ)
  • U.S. Durable Goods Orders Month-over-Month Growth – Consensus Estimate: 1.6%, Prior Month: -4.3%
  • University of Michigan Consumer Sentiment Survey (Final) – Consensus Estimate: 97.5 (-1.1% MoM), Prior Month: 98.6 (-1.5% MoM)
  • Personal Consumption Expenditures (PCE) Index Year-over-Year – Consensus Estimate: 1.8%, Prior Month: 2.0%
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