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Weekly Market Update for December 6, 2019

by JM Hanley

The Dow was up on Friday, rising 337 points to close at 28,015. For the week, the Dow was down 0.1% (SP500 +0.2%) and year-to-date is now up 20.1% (SP500 +25.5%). The yield on the 10-year Treasury (an important interest-rate indicator) was unchanged, closing at 1.84%. The price of crude oil was up 7% this week to $59 a barrel – up 29% YTD.

Trade news, always fickle, was good this week. China’s government apparently has been processing applications by domestic importers for exemptions from Beijing’s tariffs on American pork and soybeans. The news augurs well for the success of ongoing trade talks. But domestic political drama may rear its head before the end of the year. Besides progress on the trade deal, markets also expect Washington to pass a funding bill a revised trade agreement for Canada and Mexico. Lawmakers are running out of time to do so.

Economic data swung the market back and forth this week. The ISM’s index of manufacturing, released Monday, was worse than expected. Construction spending, new orders, and employment were notably worse than expected. The equivalent metric for the service sector came out just slightly better. Business activity was tepid.  Elsewhere, while factory inventories increased in October, business inventories (one of the main components of GDP) was lower than expected.  The streak of (mostly) bad news prompted some banks to cut their estimates of GDP growth.

But renewed fears about macroeconomic growth were almost completely vanquished by today’s jobs report. The 266,000 increase in payrolls was far better than expected, and unemployment fell to a new low of 3.5%. Labor force participation was essentially unchanged.  The end of an autoworkers’ strike provided a bit of an artificial boost.  But this was partially offset by bad weather and a late Thanksgiving, which seem to have pushed the start of some retail and construction jobs into this month. Job gains were otherwise distributed broadly across most sectors of the economy – a notable improvement from recent history. Earnings growth remains stubbornly slow, but job gains in October were revised up.  Today’s consumer confidence report was also better than expected.

Major items on investors’ calendar next week include the Fed’s rate decision on Wednesday, and November retail sales on Friday.  The Fed is expected to leave rates unchanged.  The British election next Thursday could provide some long elusive clarity on Brexit, but American indices remain mostly indifferent. But the most important item will be a decision on the next increase in tariffs on China, scheduled to come into effect a week from this Sunday.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.