Week in Review

Week in Review: October 14, 2019

Phase 1: A Near-Term Truce

After declining for three weeks, U.S. equities closed last week higher, as investors welcomed reports that the U.S. and China had agreed to the “first phase” of a broader trade deal. As part of the initial agreement, the tariffs on $250 billion worth of Chinese imports that were set to rise from 25% to 30% on Tuesday will not go into effect. In turn, China agreed to purchase between $40 billion and $50 billion in U.S. agricultural goods. Further steps will be reached in phases, and the leaders of both nations are expected to meet again in Chile next month. President Trump reported on Friday that intellectual property and forced technology transfer issues are still under discussion, and may be included in a second or third phase of the deal. In response to the trade truce, the S&P 500 climbed 0.7% for the week, while the NASDAQ Composite gained 0.9%

In the U.S., consumer inflation was held in check in September, as falling prices of gasoline and used vehicles offset gains across other categories. The consumer-price index (CPI) was flat in September, marking the smallest change since January. Meanwhile, core inflation - which strips out volatile food and energy products and services - also undershot expectations. Year-to-date, the CPI increased 1.7%, after advancing by the same margin in August. The report came on the heels of data showing the biggest monthly drop in producer prices in eight months, signaling that sluggish global demand and trade has also reduced the cost of many raw materials or partly finished goods. The latest batch of softer-than-expected inflation data supports investors’ expectations about the Fed cutting interest rates later this month for the third time this year. 

A strong labor market could, however, become a test for the Fed amid divisions among Fed officials on the appropriate response to the rising headwinds to economic growth. Labor market data on Thursday showed an unexpected decline in the number of Americans filing claims for unemployment benefits. Layoffs remained low even as the labor market is at the tightest levels it’s been in nearly two decades, with the unemployment rate at a 50-year low of 3.5%. Further, American consumers have experienced rising incomes, while a sharp decline in interest rates has added to their optimism. Many Americans have taken advantage of the lower interest rate environment to buy a home, refinance or purchase a new car.

Even as business investment and confidence has waned in the face of the ongoing U.S.-China trade dispute, the U.S. consumer has continued to spend and reflect confidence in sentiment surveys. The latest University of Michigan’s consumer sentiment index reading rose to 96, beating economists’ expectations and remaining near its all-time high mark (see Figure 1). The latest reading is supportive of U.S. equities as it suggests the U.S. consumer is likely continue to spend at a solid pace heading into the holiday season, but it also stands in stark contrast to other measures of the economy, including recent surveys by the Institute for Supply Management of the manufacturing and services sectors and measures of business executive confidence, which fell to the lowest level since the first quarter of 2009 in October.

Signs of progress in Brexit negotiations last week - the other long-running geopolitical saga driving volatility - also bolstered investor risk sentiment. After meeting British Prime Minister Johnson for talks, Irish Prime Minister Varadkar commented on Thursday that a deal to let Britain leave the European Union in an orderly fashion could be sealed by the end of the month. Still, with Britain due to leave the world’s biggest trading bloc on October 31, market players reiterated that the fate of Brexit is still uncertain. In response to the optimism around Brexit the MSCI EAFE index gained 2.3%. 

Looking forward, U.S. companies are preparing to report third-quarter earnings results, following a rocky few months in which they grappled with a U.S.-China trade conflict undermining the business environment and various others geopolitical headwinds. The upcoming earnings season will give investors the latest insights on how these factors and countless others affected companies' finances, in addition to the health and resilience of the U.S. consumer. 

Figure 1: University of Michigan consumer sentiment


Consumer Sentiment

Source: Thomson Reuters (10/14/2019)

Market Returns (USD)





Global Equities

MSCI All Country World

1.3% 0.1% 16.4% 8.7%

S&P 500

0.7% -0.1% 20.4% 11.1%

Dow Jones Industrial Average

0.9% -0.3% 17.1% 9.7%


0.9% 0.7% 22.5% 11.2%

Russell 2000

0.8% -0.7% 13.4% -0.7%


2.3% 0.4% 13.3% 5.6%

MSCI Emerging Markets

1.5% 1.1% 7.1% 8.7%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.0% 0.3% 5.2% 7.4%

Bloomberg Barclays Intermediate Government/Credit

-0.8% -0.1% 6.3% 8.3%

Bloomberg Barclays High Yield Bond

0.3% -0.2% 11.2% 7.3%

JPMorgan GBI Emerging Markets Global Diversified

0.3% 1.7% 9.7% 13.6%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

2970.27 2952.01 2506.85 2728.37

Dow Jones Industrial Average

26816.59 26573.72 23327.46 25052.83

10-Year U.S. Treasury Yield (Constant Maturity)

1.76% 1.52% 2.69% 3.14%

Gold ($/oz)

$1,489.01 $1,504.66 $1,282.49 $1,224.09

Crude Oil ($/barrel)

$54.70 $52.81 $48.22 $69.19

U.S. Dollar / Euro ($/)

1.10 1.10 1.15 1.16

U.S Dollar / British Pound ($/£)

1.27 1.23 1.28 1.32

Japanese Yen / U.S. Dollar (¥/$)

108.29 106.94 109.69 112.16