Week 47 Sitrep

We saw more all-time highs for the U.S. stock market indexes last week. The S&P 500 Index rose slightly less than 1% for the week as the NASDAQ added another 0.8%. International and emerging market stock indexes slowed last week but remain near record highs as well. The Chinese stock market continues to be the laggard as it is the only non-U.S. index more than 10% below its 52-week highs.1

Source: J.P. Morgan Asset Management, Weekly Market Recap, 11/18/19

 

“More of the same” continues to be the mantra for asset classes as large companies with a growth orientation were up strong last week. 2019 has been a very good year for stocks overall, but the large companies continue to outpace small companies by a wide margin. Notably, smaller companies in the value space have lagged the broader markets by nearly 10% this year. The technology sector boasts an impressive 42% return this year, while industrials, communications, financials and real estate are beating the S&P 500 Index. Energy continues to lag the rest of the market significantly for 2019 showing a 7.6% return.2

Source: J.P. Morgan Asset Management, Weekly Market Recap, 11/18/19

 

We have noticed that market volatility has fallen in the last two months. Bespoke Investment Group notes that the S&P 500 has not had an intraday swing of 1% in the last 25 trading sessions (more than a month). In the last ten years, we have had a few occasions of more than 25 sessions without a 1% move, but we are in a prolonged period of lower volatility since the market moved higher in October. Interestingly, many of the periods with lower volatility have occurred since the 2016 election.3

Source: Bespoke Investment Group, The Bespoke Report, November 15, 2019

 

U.S. economic data continues to show moderately slower growth than average. Recent information suggests that consumer spending remains strong, especially as we approach the holidays. We believe the strength in the consumer is correlated to the near 50-year lows in unemployment and mild wage growth. We usually expect robust housing growth when interest rates are very low and recent reports confirm that housing starts are healthy for the year. Overall, consumers have healthy credit scores – Bespoke reports that the median credit score at loan origination is at the highest level in more than five years.4 For those worried about a credit crisis a la 2007, we just don’t see any evidence in the economic data.

Source: Bespoke Investment Group, The Bespoke Report, November 15, 2019

 

The net result is a U.S. economy that is growing between 1.5-2% according to GDP and seeing moderate inflation growth of 2.65%. Many of the leading indicators we follow are pointing to lower inflation in the coming year. The New York Fed measures inflation on a year-over-year change basis and anticipates that median CPI will be around 2.5% by the end of 2020.5 That report would be consistent with other measures of inflation and economic growth which supports the decision by the Federal Reserve to keep interest rates lower.

Source; Bespoke Investment Group, The Bespoke Report, November 15, 2019

 

Our supply/demand indicators continue to show increasing demand for U.S. stocks. The trends have expanded for our long-term, intermediate and short-term indicators. The most notable change is for the resources and materials category, which turned bullish this past week. We believe the bullish momentum for resources and materials is likely a result of a change in sentiment towards the trade agreement with China. Many of the stocks in that category were adversely affected by the threat of pending tariffs if no trade deal were achieved. When an indicator turns negative, we would begin to look at reducing risk in the appropriate assets.

The recent increase in interest rates appears to have abated for now. The benchmark 10-year U.S. Treasury closed the week at 1.84%, down slightly from the prior week’s close. We would normally expect U.S. interest rates to rise if the economy were picking up steam, however, recent economic data confirms a moderate rate of growth keeping interest rates in check.6

Source: J.P. Morgan Asset Management, Weekly Market Recap, 11/18/19

 

Given the upcoming holiday season and the anticipation of holiday shopping, we thought it would be interesting to include recent statistics on the trends for online shopping. While recent reports on retail sales were mixed overall, there were some amazing trends that bear noting. Our earlier comment on the strength of the U.S. consumer is reflected in the spending habits for dining out compared to sales of groceries. Historically we would expect higher spending for dining out when an economy experiences an extended growth period.7

Source: Bespoke Investment Group, The Bespoke Report, November 15, 2019

 

As many of you would also suspect, the type of shopping continues to evolve with technological advances. Last November we saw the total share of purchases from online shopping exceed the share of purchases from traditional “brick and mortar” stores. The trend has only continued as online shopping now accounts for 13% of all retail sales. Interestingly, the year-over-year pace of sales for online shopping is near a 20-year high while the sales from traditional stores remains very low.8 This is a trend that appears to be permanent and will only get wider in the future – we’re sure most of you would agree!

Source; Bespoke Investment Group, The Bespoke Report, November 15, 2019

If you’d like to schedule a time to discuss your portfolio or the markets in detail, please feel free to call our office at (281) 616-5935 or send an e-mail to cameron.malott@engravewealth.com. We welcome the opportunity to sit down with you and learn more about your situation so we can help you optimize your portfolio to meet your financial goals for years to come.

Engrave Wealth Partners Investment Committee

Bill Day, CFP®, CIMA

Taylor Parker, CFP®

Greg Parker


Footnotes:

1. Bespoke Investment Group, The Bespoke Report, 11/15/19
2. J.P. Morgan Asset Management, Weekly Market Recap, 11/18/19
3. Bespoke Investment Group, The Bespoke Report, 11/15/19
4. Bespoke Investment Group, The Bespoke Report, 11/15/19
5. Bespoke Investment Group, The Bespoke Report, 11/15/19
6. J.P. Morgan Asset Management, Weekly Market Recap, 11/18/19
7. Bespoke Investment Group, The Bespoke Report, 11/15/19
8. Bespoke Investment Group, The Bespoke Report, 11/15/19

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