Week in Review

Week in Review: November 18, 2019

Inflation Bottoming?

U.S. equities reached new all-time highs last week as investors welcomed reports that the U.S. and China appear to be drawing closer to a trade agreement, buoying optimism of a resolution on the horizon. In turn, the S&P 500 gained 0.9%, while the NASDAQ Composite advanced by 0.8%. Hopes for a trade truce have boosted investors’ optimism over recent weeks, with stock prices and long-term U.S. bond yields rising. In addition, better-than-expected corporate earnings results have further helped lift risk-on sentiment. Meanwhile, recession fears have ebbed, driven in large part by the Fed’s decision to lower interest rates by 0.75% over the course of its three most recent meetings, a policy change that lifted market participants’ confidence about future economic growth. 

On the economic front, the U.S. Commerce Department reported that retail sales – which include purchases at stores, restaurants and online – rose 0.4% in October as consumers increased their spending after a surprising pullback in September. Growth in consumer spending, the major driving engine of the decade-long U.S. economic expansion, contrasted with another drop in U.S. factory production. A report from the Fed showed industrial production fell 0.8% in October, the third decline in four months. While the Fed attributed much of the decline to the General Motors strike, the decrease points to a broader slowdown in manufacturing across the U.S. and internationally, exacerbated by global trade tensions. However, consumer spending – which accounts for more than two-thirds of U.S. economic output – remains robust, and has helped support the economy this year. A historically low unemployment rate, combined with a rise in wages and muted inflation, has encouraged consumers to keep spending. 

As stocks rallied to new highs in the past week, U.S. Treasury yields retreated from recent highs. Though long-term yields have drifted lower over the past few days, a series of recent developments sparked a rebound from the near historic lows recently witnessed. In an effort to counter uncertainties heightened by the U.S.-China trade conflict, the Fed voted to lower short-term interest rates for the third time this year. While the week brought the first public testimony as part of President Trump’s impeachment inquiry, investors seemed to pay more attention to Fed Chairman Powell’s appearance before lawmakers on Thursday, where he gave further indications that the Fed would need to see a material change in economic conditions and inflation levels before making further adjustments. The consumer price index – which measures the costs of everyday goods and services – increased 0.4% last month, driven largely by a rise in gas prices. In the 12 months through October, the core consumer price index – which excludes the volatile food and energy components – increased 2.3%, as healthcare costs jumped by the most in more than three years (see Figure 1). In general, the inflation narrative remains mostly the same: inflationary pressures remain mild and below target, while new tariffs on imports appear to have had no significant effect on consumer prices thus far.

A series of positive economic reports and an improved mood around a trade deal have lifted investors’ outlook for the U.S. economy over recent weeks, while solid corporate earnings results have underpinned the market's combination of new highs with low volatility. However, we remain cautious of possible violent bouts of market volatility as we advance into 2020, as trade headlines are likely to remain a driving force until a resolution is reached. Nevertheless, we think a near-term U.S. recession next year is unlikely, given the solid labor market, easier monetary policy, high levels of market liquidity and a robust consumer sector.

Figure 1: U.S. Core Consumer Price Index (CPI)


U.S. Core CPI

Source: Thomson Reuters (11/18/2019)

Market Returns (USD)





Global Equities

MSCI All Country World

0.4% 4.9% 21.9% 14.3%

S&P 500

0.9% 5.1% 26.7% 16.6%

Dow Jones Industrial Average

1.2% 4.4% 22.6% 13.4%


0.8% 6.9% 29.9% 18.9%

Russell 2000

-0.1% 5.0% 19.8% 6.3%


0.1% 4.8% 18.2% 12.7%

MSCI Emerging Markets

-1.5% 4.9% 11.1% 9.7%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.2% 0.1% 5.0% 6.8%

Bloomberg Barclays Intermediate Government/Credit

0.4% 0.1% 6.5% 8.2%

Bloomberg Barclays High Yield Bond

-0.1% 0.4% 11.9% 9.4%

JPMorgan GBI Emerging Markets Global Diversified

-0.4% 1.9% 10.0% 12.6%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3120.46 3093.08 2506.85 2730.2

Dow Jones Industrial Average

28004.89 27681.24 23327.46 25289.27

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

1.84% 1.94% 2.69% 3.11%

Gold ($/oz)

$1,468.21 $1,459.00 $1,282.49 $1,213.36

Crude Oil ($/barrel)

$57.72 $57.24 $48.38 $58.07

U.S. Dollar / Euro ($/)

1.11 1.10 1.15 1.13

U.S Dollar / British Pound ($/£)

1.29 1.28 1.28 1.28

Japanese Yen / U.S. Dollar (¥/$)

108.80 109.26 109.69 113.64