Last week provided investors clarity on their two biggest concerns: interest rates and trade. Federal Reserve communication indicated rate increases will likely slow in 2019, and over the weekend, the U.S. and China announced an agreement to delay an increase in tariffs from 10% to 25% on a wide range of U.S. goods. In exchange, the Chinese will buy more U.S. goods, and both sides will seek an agreement in the next quarter.
Markets reacted very positively to the news on rates. The S&P soared 4.8%. The gains marked the second time this quarter the S&P 500 has neared a 10% fall and rallied back. The MSCI ACWI gained 3.3% as global stocks joined the rally. The Bloomberg BarCap Aggregate Bond Index edged up 0.1%.
Despite the volatility, November’s returns were positive, as the strong performance last week pushed stock indexes from negative to positive returns. The S&P rose 1.8%, and the MSCI ACWI climbed 1.3%. The Aggregate Bond Index rallied 0.6% as concerns about slowing economic growth aided bonds.
KEY POINTS FOR THE WEEK
- U.S. stocks rallied sharply last week.
- Interest rates are not likely to rise as quickly as many investors feared.
- The U.S. will delay an increase in tariffs on Chinese goods as part of trade negotiations.
U.S. economic data released last week shows inflation stagnating and consumer spending at the highest level it’s been in seven months. PCE core inflation, the Fed’s preferred inflation measure, rose 1.8%. It was the lowest level since February and is below the Fed’s target of 2%. Consumer spending increased by 0.6% in October, while wages rose by 0.3%. Both data points suggest the consumer remains a source of strength in the U.S. economy.
The lower inflation data reinforces other data indicating the economy is slowing. Investors worried the Fed would keep raising rates despite how low inflation has contributed to recent volatility. But when the minutes from the Fed’s most recent meeting were released, the rate hike path for 2019 appeared less certain. While the minutes suggested the plan to raise rates in December is a foregone conclusion, the Fed indicated it would be more flexible and pay close attention to economic data and react accordingly. Fed Chair Jerome Powell stated that interest rates were just below neutral, which is a level where interest rates neither speed nor slow economic growth. This soothed many investors’ concerns on whether interest rates would be raised too high and hurt economic growth.
Christmas came early for some Bank of America customers in Texas last week when an ATM started spitting out $100 bills instead of $20s. After news spread, a long line formed of people seeking a quick 500% return. Apparently caught up in the spirit of cheer, Bank of America said customers could keep the money because it was the company’s error.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds
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