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Capital Market Impact Weekly market commentary

Markets pause, but display resilience

NOV. 25, 2019


  • Markets paused last week in the march higher, though they showed remarkable resilience given the flood of potentially market-moving news, including impeachment proceedings, trade uncertainty, choppy global growth trends and the fading likelihood of additional Fed rate cuts. This could be further evidence in a shift in investor focus from trading in reaction to news to a more fundamental approach, which would be good for the intermediate term.
  • With the 26% total return this year (best since 2013) with heavy reliance on P/E expansion, there is some justifiable concern about what 2020 brings. The average Wall Street analyst target implies just a 5% gain from current levels. A trade deal teamed with accelerating earnings and the boost from the recent Fed rate cuts could lead to upward revisions.
  • The consumer is in good shape as we approach Black Friday, driven by a strong job environment, healthy wages and low inflation. Retail sales have been choppy in recent months, though have been growing at 3-5%. Research firm eMarketer estimates growth of 3.8% in the holiday season (up from 2.4% last year), crossing $1 trillion for the first time, with online spending up more than 13%, representing more than 13% of total shopping. The National Retail Federation (NRF) expects growth of 3.8% to 4.2% (likely towards the higher range), with the average consumer spending $1,048. More than half of Americans have already started holiday shopping or plan to do so before Black Friday.

Other Topics

  • In what feels like Groundhog Day, there are signs of optimism that a “phase one” trade deal with China is near. China said it will raise penalties on intellectual property violations and are moving towards increasing agriculture purchases. Both sides are now hinting at what “phase two” will look like, though there is justifiable skepticism on the structure and timing. Chinese officials do not expect negotiations to begin before the 2020 election.
  • The global economy continues to be choppy, highlighted by recent readings on PMI. In the U.S., Markit manufacturing was a better-than-expected 52.2 versus 51.3 in October, touching a seven-month high. Services PMI also beat estimates at 51.6 versus 50.6 in October. Eurozone manufacturing PMI hit a three-month high at 46.6, though it is still solidly in “contraction” territory (<50). Services PMI in Europe was disappointing at 51.5, though it remains in the “expansion” range. Activity in the U.K. continues to be impacted by Brexit uncertainty. With PMIs showing the sharpest decline since the Brexit vote. Japan PMIs were mixed, with manufacturing PMIs slightly improved at 48.6, though it was the seventh-straight month of contraction. Services PMI rebounded to expansion at 50.4.
  • With Mike Bloomberg officially announcing he is entering the race, the odds have shifted materially. Elizabeth Warren’s lead has evaporated, with Joe Biden retaking the lead per Predictit. Bloomberg has jumped to 5th place at 14%, with much of his support coming at the expense of Pete Buttigieg instead of Biden. The top-5 candidates are within 10 points.

What to Watch

  • Important economic releases and light trading from the holiday could cause volatility next week. Data include consumer confidence and new home sales on Tuesday, and durable goods, revised GDP, PCE deflator, personal income spending and pending home sales on Wednesday. Attention will be paid to retail trends on Black Friday to assess the strength of the consumer entering the holiday season.

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