A (mostly) good news month
If 2019 was a detective novel, December was a solid last chapter– a lot of mysteries were resolved, most of them favorably from the investor’s point of view, but some uncertainties remain.
Trade negotiations with China, a long-running source of market handwringing, advanced early in the month leading to the announcement of a phase one deal on December 12th and we closed out the month with easing trade tensions, lifting demand for Chinese goods, and strength in December factory output. A deal on another closely watched trade agreement, this one with Canada and Mexico designed to replace NAFTA, was reached in the U.S. House of Representatives and announced by House Speaker Nancy Pelosi mid-month.
Data releases were mostly on the upside as well. November nonfarm payrolls jumped by 266,000, well above estimates, and the previous months’ gains were revised higher. The unemployment rate fell from 3.6% to 3.5%. November industrial production surged 1.1%, reflecting both a rebound in auto output following the end of the GM strike and healthy gains in underlying output. In the face of all this good news, markets rose, with the S&P 500 up 3.02% in the month. At the same time, the U.S. Federal Reserve left interest rates unchanged and signaled that, barring major global developments or substantial shifts in inflation, it will remain on hold.
Another looming uncertainty, funding for the federal government, saw at least a positive short-term outcome with a tentative spending agreement announced on December 12th. In other government-related news, the seemingly never-ending Brexit drama appeared to enter its last act when Boris Johnson won an overwhelming victory in the British general election on December 13th, a stunning result that paved the way for the U.K. Parliament to finally trigger the split with the European Union.
One exception to the drumbeat of good news: the dollar. The dollar had a tough December as the Fed’s dovish tilt shrinks the yield premium offered by U.S. Treasuries. As we enter 2020, some question the dollar’s status as a safe-haven asset. Time will tell if that prophesy comes true.
Key Market and Economic Data
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The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada.
The MSCI Emerging Markets (EM) Index captures large and mid-cap representation across 24 emerging markets countries.
The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and nonagency). Bloomberg Barclays US Universal Index includes high yield.
The Bloomberg Barclays U.S. Short-Term Treasury Bond Index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity of between 1 and 12 months.
ICE BoAML US Treasury 20 year+ Index ICE U.S. Treasury Indices are market value weighted and designed to measure the performance of the U.S. dollar-denominated, fixed rate U.S. Treasury market.
iBoxx Liquid Investment Grade Index is designed to provide a balanced representation of the USD investment grade corporate market and to meet the investors demand for a USD denominated, highly liquid and representative investment grade corporate index.
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
The Consumer Price Index for All Urban Consumers Ex Food and Energy (Core CPI) is an aggregate of prices paid by urban consumers for a typical basket of goods, excluding food and energy, is widely used by economists because food and energy have very volatile prices.
Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors. This measure of inflation excludes these items because their prices are much more volatile.
The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.
The ISM Non-Manufacturing Index is an economic index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation.
The Consumer Confidence Index (CCI) is an economic indicator published by The Conference Board to measure consumer confidence, which is defined as the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending.
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