Weekly Market Commentary January 21, 2019

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Stocks continued to post strong weekly gains. The S&P 500 gained 2.9%, following last week’s 2.6% increase.

Investors seemed to be following the advice of Johnny Mercer’s song and accentuating the positive by focusing on solid U.S. economic data and continued positive signs the U.S. and China are moving toward a trade deal. U.S. industrial production rose 0.3%, which was above expectations. Treasury Secretary Steven Mnuchin’s suggestion that the U.S. might cut tariffs with China in advance of the next round of negotiations added to optimism about a potential trade deal.

In line with Mercer’s song, potential negatives did not seem to hit many investors’ radar. The lack of progress on Brexit, the negative economic consequences of the government shutdown, and how trade disputes are pressuring global growth did not seem to matter to investors.

Global stocks participated in the market strength. The MSCI ACWI, which includes stocks from developed and emerging markets, rose 2.2%. Bonds fell on the solid economic data as the Bloomberg BarCap Aggregate Bond Index dropped 0.2%.

Key Points for the Week

  • Markets rose for the third week in a row as earnings season kicks off.
  • Inflation remains under control, and U.S.-China talks are moving to the next stage.
  • Strong performance is an opportunity to reassess risk tolerance.


Economic Strength Continues

Investors should keep a balanced view of the U.S. economy. Industrial production rose 0.3% in December and, as the accompanying chart shows, grew nearly 4% over the last 12 months. The components of the measure suggested even more strength. Manufacturing output rose 1.1%, the largest increase in the last 10 months. Warm weather reduced utility output; otherwise, the overall data would have been even stronger.

The positive industrial data should be tempered by indications that global economic momentum continues to slow and the damage from trade will likely continue to push growth lower. If economic growth remains strong, with support from last year’s tax cut and deregulation, then the strong economic data should continue. A balanced view that recognizes the strength in current data and the risk on the horizon will help investors avoid getting caught up in the big swings, such as the market has experienced in recent months.

Fun Story

The world’s oldest woman was 122 when she died. A researcher says she was lying about her age.

Jeanne Calment died in 1997 at the age of 122 and is the oldest documented person to have lived, according to Guinness World Records. However, A Russian researcher says that Jeanne was actually Yvonne, Jeanne’s daughter, who assumed her mother’s identity to avoid inheritance taxes in the 1930s. If found true, Yvonne may have to compete for the world record for most aggressive strategy to avoid taxes instead.

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