Weekly Expert Market Perspectives Park Avenue Securities PAS

Major Indices Hit New Records as U.S. and China Reach Phase One Trade Deal

It was another record-setting week in which the U.S. and China reached a Phase One trade deal that helped avoid the Dec. 15 tariffs. The S&P 500 (+0.7%), Dow Jones Industrial Average (+0.4%), and Nasdaq Composite (+0.9%) set new intraday highs. The Russell 2000 increased 0.3%.

Nine of the 11 S&P 500 sectors finished higher, with the information technology sector (+2.0%) outperforming by a wide margin amid strength in the semiconductor space. The Philadelphia Semiconductor Index rose 4.2%. The real estate sector (-2.6%) greatly underperformed, and the communication services sector (-0.7%) finished modestly lower. 

These results were mostly solidified before the trade announcement on Friday, which was largely expected given the gains posted beforehand and the muted reaction after the official decision. Specifically, the USTR confirmed that the tariff rate on $250 billion of Chinese imports will remain at 25%, the tariff rate on $120 billion of Chinese imports will be cut to 7.5% from 15%, and China will commit to purchase additional U.S. farm goods. 

Agricultural purchases will reportedly be between $40-50 billion over a two-year period. President Trump added that Phase Two discussions will begin immediately, which should focus on issues pertaining to forced technology transfers and IP rights, according to NEC Director Kudlow. 

Trade dominated the headlines and dictated price action, but this week also included FOMC and ECB policy decisions, a UK election, government deals, and the Retail Sales Report and Consumer Price Index for November:

  • Both central banks left rates unchanged, with the Fed signaling no rate hike in 2020.
  • The Conservative Party won in a landslide, setting up a Brexit by Jan. 31.
  • A USMCA deal was reached and a bipartisan budget deal was reportedly reached, as well.
  • Retail sales and consumer prices for November increased less than expected. 

U.S. Treasuries had another week of wild swings but ultimately finished near their unchanged marks from last week. Both the 2-yr yield and 10-yr yield declined one basis point each to 1.60% and 1.82%, respectively. The U.S. Dollar Index fell 0.5% to 97.19. WTI crude rose 2.8% (+$1.66) to $60.11/bbl. 

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Data and rates used were indicative of market conditions as of the date shown and compiled by Briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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2019-91194 (Exp 3/20)