A Strong Hand
12.06.19
Spurred by a sensational jobs report, the S&P 500 finished a volatile week on a high note. After correcting roughly 2% from recent highs, the market has quickly recovered its ground and is primed to push even higher. With a strong base of technical support, investor sentiment that is far from strained, strong seasonals, and a leadership mix that is turning evermore cyclical, the path of least resistance is a steady grind higher. As has been the case for some time, the missing ingredient for an explosive move higher is a trade deal. The shape of U.S. economic data is beginning to strengthen its hand at the table.
President Trump surprised markets earlier in the week with comments that a trade deal could be pushed off till after the 2020 elections. Markets were rattled at first, but soon came to the realization that Trump’s words were more gamesmanship than anything. The President has consistently used market highs as an opportunity to take a tougher stance on China. This week was no exception. The cherry on top was a stellar BLS jobs report to cap the week. Job gains came in a 266K vs. analyst estimates of 180K. In addition, previous months were revised higher and the unemployment rate pushed back down to a multi-decade low at 3.5%. This is a clear signal that the U.S. labor market remains healthy despite the weakness in manufacturing. Consumption, which makes up over 70% of the U.S. economy, remains on solid footing as a result. With economic strength at his back, President Trump can afford to negotiate a little harder with the Chinese in search of true structural change. By contrast, the Chinese are dealing with an economy that seems to be decelerating at a faster rate. Imports and exports continue to fall and inflation continues to build. China appears to be in far greater need of a deal than the U.S. at this juncture.
At the same time, signs continue to emerge that global economic growth should pick up into 2020. Yield curves around the world are steepening, industrial metals are outperforming precious metals, small caps are breaking out, the dollar has been getting softer, and emerging markets continue to look better. Crude oil is even starting to catch a bid. Part of this is driven by further OPEC cuts and Iranian instability, but an improving demand outlook is playing a role to a degree. The global backdrop is certainly encouraging for risk assets.
This report was prepared by Donaldson Capital Management, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information in these materials are from sources Donaldson Capital Management, LLC deems reliable, however we do not attest to their accuracy.
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S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.