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Weekly Update

Market Summary

Markets responded very positively last week to comments from Federal Reserve Chairman Jerome Powell on future monetary policy and to the prospect of easing trade tensions between the U.S. and China. For the week, U.S. stocks rallied sharply upward with the highest weekly gains on the year as the S&P 500 returned 4.9% and the Dow Jones and NASDAQ returned 5.3% and 5.7%, respectively. The positive momentum has carried into this week’s early trading as President Trump and China’s President Xi Jinping agreed to a 90-day cease-fire in the current trade conflict over the weekend.

Much of last week’s surge in stock prices has been attributed to Fed Chairman Powell’s comment at a speech on Wednesday that the federal funds interest rate is “just below the broad range of estimates” of the neutral rate. The comment, which seemed to be a departure from his remark from a month ago that the neutral rate was still a long way off, was inferred by market participants to mean a near-term pause in interest rate hikes was more likely, which would positively impact stocks. However, a December rate hike of 0.25% is still broadly expected by market participants.

In addition to the positive sentiment from Fed commentary, the 90-day truce on trade between the U.S. and China has fueled more demand for equities and other risk assets. Per the agreement, President Trump agreed to leave tariffs on $200B worth of Chinese goods at a rate of 10% and not raise the tariffs to 25% at the start of 2019 as originally planned. In return, China agreed to purchase a “very substantial” amount of agricultural, energy, industrial, and other products from the U.S. and reduce tariffs on U.S. autos. However, many investors remain skeptical about the likelihood of striking a comprehensive deal in the next 90-days, as the two nations remain far apart on key issues like forced technology transfer and protection of intellectual property.

Looking to the week ahead, markets will be closed on Wednesday, which has been declared a National Day of Mourning for George H.W. Bush, the 41st president of the United States, who passed away last Friday.

Economic Highlights: 

Inflation: October’s core inflation reading (PCE Index) came in just below expectations rising 1.8% year-over-year, which was down from 1.9% in the month prior and under the Federal Reserve’s 2% inflation target.

Oil: WTI crude oil prices dipped below $50 a barrel last week for the first time in over a year before rallying up 4% in this week’s early trading after Saudi Arabia and Russia reached an agreement to extend their deal to limit production into 2019 and Canada announced that it would curtail a portion of its production.

US Economy – The Week Ahead

Tuesday 12/4/2018

  • No Data

Wednesday 12/5/2018

  • Markets closed – National Day of Mourning in honor of George H.W. Bush
  • ISM Non-Manufacturing PMI – Consensus Estimate: 59.0 (-2.1% MoM), Prior Month: 60.3 (-2.1% MoM)

Thursday 12/6/2018

  • Initial Jobless Claims – Consensus Estimate: 220,000 (-1.8% WoW), Prior Week: 224,000 (3.7% WoW)
  • Trade Balance – Consensus Estimate: -$55.0B (-1.9% MoM), Prior Month: -$-54.0B (-1.3% MoM)
  • Durable Goods Orders Month-over-Month (Final) – Consensus Estimate: -4.4%, Prior Month: -0.1%
  • Factory Orders Month-over-Month – Consensus Estimate: -1.8%, Prior Month: 0.7%

Friday 12/7/2018

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.1%, Prior Month: 2.8%
  • U.S. Unemployment Rate – Consensus Estimate: 3.7%, Prior Month: 3.7%
  • Wholesale Inventories Month-Over-Month Growth – Consensus Estimate: 0.65%, Prior Month: 0.6%
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