U.S. equities rose yet again as additional economic data rebukes the idea of a downturn

David Joy – Chief Market Strategist, Ameriprise Financial
Weekly markets commentary — Dec. 2, 2019

After a brief, one-week hiatus, U.S. equities resumed their winning ways last week. The S&P® 500 Index added 1.0 percent to close at 3,140.98. Due to a modest selloff on Friday, Thursday’s closing high of 3,153.63 stands as the new record close. Energy was the only sector to lose ground, while technology, real estate, and consumer discretionary led the way higher. In addition, the consumer seems poised to deliver a strong holiday shopping season. Early reports suggest that Black Friday was a particular success – especially for retailers with a heavy e-commerce presence, and less so for those with both e-commerce and mall square footage. Cyber Monday is expected to see similar strong results. Merger activity also lent to the overall momentum in equities last week, notably TD Ameritrade and Tiffany.

Last week’s economic data overall lent support to the idea that the economy continues to defy reports of its demise. It turns out that growth in the third quarter was stronger than first reported, 2.1 percent versus 1.9, in part due to stronger consumer spending. Durable goods orders rebounded after a weak September. And the personal consumption expenditure (PCE) deflator showed little price pressure. And optimism for agreement on a phase one trade deal between the U.S. and China stayed high, as the two sides continued to talk.

Pricing the economic impact of the trade war; Better economic data out of China

There was less upbeat news on the impact of the trade war. The New York Federal Reserve published a report titled “Who Pays the Tax on Imports from China?” No surprise, except perhaps to some in Washington, the report concluded that it is the U.S. importers and consumers that are paying the tariffs, estimated to total $40 billion dollars a year. In a separate report, according to the CPB World Trade Monitor, global trade volumes declined 1.3 percent in September.1 This disappointing result followed two months of increases that had led some to speculate that the slowdown in trade had stabilized. 

China delivered some better economic news of its own last week when it reported that its manufacturing sector actually expanded in November after six months in contraction. An increase in the service sector resulted in the strongest composite reading since March. 

What’s to come this week in the U.S. economic calendar

The economic calendar in the U.S. is jammed in the week ahead. At the top of the list is the November jobs report. The Bloomberg consensus calls for the creation of 188,000 new non-farm jobs, although this month’s total may be distorted by the end of the GM strike. The unemployment rate is expected to remain unchanged at 3.6 percent. Both the ISM and Markit manufacturing reports are scheduled. The ISM version has been in contraction for the past three months and is expected to stay that way. The Markit version has remained consistently in expansion and is expected to stay there. And the companion service sector reports by both services are scheduled as well. Lastly, the preliminary consumer sentiment survey for December is scheduled for Friday.