MCF Weekly Capital Market Review - December 2nd, 2019
US broad market indices again set all time highs last week after a lackluster week prior. New home sales for Q3 beat expectations, confirming a pickup in housing. Consumer confidence fell for the 4th consecutive month, however confidence levels remain high. The final Q3 GDP held at 2.1%, above the original 1.9% estimate. Powell’s speech last week reiterated the Fed’s outlook of moderate growth. He highlighted the importance of hitting the 2% inflation target and sustaining the economic expansion to help low- and middle-income households often left behind. Real wages slumped until 2014 but have since continued to increase with the current economic expansion.
Trump’s next trade targets are Brazil and Argentina due to currency devaluation, proposing tariffs on steel and aluminum imports to the US. Foreign currency devaluation reduces exports to those countries. Against the US Dollar, the Brazilian Real devalued ~8.7% and Argentine Peso devalued ~37% for the past year. Brazil is the 9th-largest destination of US exports year-to-date at $31.6 billion (or a miniscule 2.6% of total exports). Argentina is even lower with $19 billion total for the year 2018. Trump has framed these devaluations as hurting US farmers and the tariffs are mostly a veiled move to fire up part of his base for 2020. The direct economic impact is likely negligible.
The elephant in the room on trade is the ongoing trade dispute with China. Despite positive reassurances by both sides, any sort of deal is appearing more likely to fall through. In the US, Congress passed a bill supporting Hong Kong protests, imposing possible sanctions for any human rights violations and the upholding of democratic principals in Hong Kong. China, through state-sponsored media, says the US must “roll back all tariffs if it is going to show sincerity” and that tariffs have to be cut first before any trade deal is reached. As always, the public is unaware of the true status of negotiations and unable to discern between official policy and political posturing.
This week will feature releases on PMI and ISM manufacturing indices, construction spending, ADP employment, and consumer sentiment.
IMPORTANT DISCLOSURE INFORMATION
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S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.
MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.
Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.
Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.
S&P GSCI is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. The S&P GSCI is intended to provide exposure to broad-based commodities. Investors cannot invest in an index.
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- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.
Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.
Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.
Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.