Trade negotiators remained primarily responsible for the market yo-yoing up and down in a tight range. Last week, the U.S. and China both shared positive comments about the status of negotiations toward a “Phase One” deal. Asian economies are more tightly tied to trade than other regions, and economic data from the region remains weak. India’s GDP rose only 4.5%, down from 8% last year. Japan’s industrial production plunged 4.2%.
Key Points for the Week
- Business investment rose 1.2% last month as manufacturing continues to heal.
- The S&P 500 rose 3.6% on improved economic data and hopes for a trade deal.
- Long-term trends are slowly reshaping major U.S. industries.
U.S. manufacturers seem to be healing more rapidly. As seen in the accompanying chart, the proxy for business investment rose 1.2% last month after a string of declines or very small increases. Increased investment is an early sign of greater demand for manufacturing in the U.S.
The S&P 500 climbed 1% last week, reflecting the positive outlook on a trade deal and the positive economic data. The global MSCI ACWI gained 0.6% as the weaker international data limited gains overseas. The Bloomberg BarCap Aggregate Bond Index edged up 0.2% as inflation remained firmly under control. November proved to be an attractive month for stock investors. The S&P 500 rose 3.6%, and the MSCI ACWI gained 2.4%. Bonds dipped 0.1%.
The U.S. jobs report and any news on trade are likely the two most important events to affect the market this month. Job growth will be boosted by autoworkers at General Motors returning to work after a new contract ended their strike.
Thanksgiving is a wonderful holiday for taking a step back and reflecting on some of the bigger things in life. Similarly, this week’s update will detail three steady changes continuing to shape the U.S. economy.
Rearranging Energy Usage
If you saw the video of the new prototype truck unveiling, you may have cringed as its shatterproof glass was smashed — twice. But don’t miss the bigger story of a significantly more fuel-efficient pickup. The trend is moving toward greater energy efficiency throughout the U.S. economy. Energy stocks are only 4.2% of the S&P 500. Eight years ago, an oil company was the largest U.S. company. Coal used to be the top fuel for generating electricity. In June, renewables produced more energy than coal for the first time after coal was previously supplanted by natural gas. The U.S. economy continues to rely less on energy than ever before.
Black Friday store traffic was down 6.2% from last year. Online orders rose nearly 20%. The local department store now does double duty as a warehouse for online orders. One such company sources 80% of its online deliveries from local stores. More than 9,300 retail locations have closed this year as business moves online. The move away from malls and physical stores will continue to pressure business models, employment, and real estate development for years to come.
Trade will likely continue to slide compared to the global economy. In the past, the U.S. was willing to open up to foreign trade to support countries threatened by communism. As the communist threat has faded, the foreign policy benefits of free trade have faded, too. Globalization lasted longer than the Berlin Wall; and in 2011, trade made up 30.8% of total GDP. The ratio has slipped to 27.1% and will likely continue to decline. Part of the decline in trade comes from a greater emphasis on services over goods. Services are delivered closer to the customer in most cases. Whatever the cause, trade’s importance to the global economy will likely continue its fall.
The week-to-week data is important. Next week’s jobs report provides information about where the economy is now and is likely to head in the near future. The following week, Britain will hold elections that will shape a potential Brexit. These are important events. But the world keeps steadily changing, and only by stepping back can you see how important those changes are.
Christmas trees provide a great lesson in basic economics. Prices for the average tree bounced between $34 and $42 from 2008 to 2014. The financial crisis pushed plantings lower for several years, and the trees from those down years are now being harvested. In addition, some trees from that crop were lost to disease, further limiting supply. But the economy is much stronger now, and people want real trees. Economics teaches us the rest. Supply is down, demand is up — prices move higher. This year, the average tree is expected to cost just under $80. But at least the economics lesson is free.
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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