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Market Commentary for the week ending December 7th, 2019
- The Employment Report showed the economy adding 266,000 new jobs and the unemployment rate falling to 3.5%
- Stocks rebounded later in the week after a negative start but remain below record highs
- International markets outperformed U.S. markets for the week but remain behind year-to-date.
Market Performance Summary
Notable Market Headlines
Stocks started the week trading lower impacted partially by a report on the manufacturing sector showing it in decline. As the week wore on though markets recovered and closed strong following what were considered blowout employment numbers for the month of November with hiring surging and wages increasing modestly. This good news on employment late in the week was accompanied by a backdrop of what has been a great start to the holiday shopping season.
At the close of the week large U.S. stocks were higher by a modest +0.2% as measured by the S&P 500 while both the Dow Jones Industrials and the NASDAQ Composite fell by -0.1%. Small U.S. stocks fared better with a gain of +0.7%. Industrial stocks were the weakest sector as concerns heighten that the trade war could go on for longer than originally hoped. There was some optimism though that the strength of the U.S. economy could help President Trump in his negotiations with China.
International stocks outpaced U.S. stocks this week with developed country stocks higher by +0.8% with the best performing region being Japan up +2.1%. Emerging markets performed even better gaining +1.3% for the week helped by a +5.3% jump in Brazil’s market. Year-to-date developed markets are higher by +19.4% and emerging markets by +11.1% compared to large U.S. stocks +27.8% gain.
China’s market, the biggest of the emerging markets, had a decent week gaining +0.7% outpacing U.S. markets but that certainly has not been the case longer term. As the below graph illustrates, China’s market is up less than +20% over the past 10 years while at the same time large U.S. stocks have tripled in value! There has just been no comparison in long-term performance of these two markets.
Commodities were the best performing alternative asset class this week gaining +3.2% as the price of oil jumped on hopes of reduced supply. Both gold and real estate stocks were down, -0.4% and -0.2% respectively. Reports on inflation next week could have some impact on these investments.
Bond prices slipped -0.2% for the week with yields moving higher on the heels of the employment report suggesting the economy is in good shape for the time being.
Ulta Beauty (ULTA), the largest beauty products retailers in the country with more than 1,200 locations, reported better than expected results for the most recent quarter sending its stock higher. Revenue for the quarter climbed 7.9% to $1.68 billion with earnings per share of $2.25 versus an average estimate of $2.18. This company has been a consistent deliverer of growth as illustrated in the below graph as revenue has climbed from just $1.5 billion annually 10 years ago to $7.2 billion today. The stock jumped +12.1% this week but the impressive story is that it has climbed more than 10-fold in less than 10 years outpacing the overall market by many multiples.
Expedia Group (EXPE), the world’s largest online travel agency including brands such as Hotels.com, Travelocity, and Orbitz, announced its CEO and CFO resigned from the company effective immediately. This news follows a disappointing recent quarter and its board’s chairman Barry Diller saying the board and senior management disagreed on strategy. This stock hit a high more than two years ago at nearly $160 and is now trading at $107 including this week’s gain of +5.8%.
Energy stocks were the best performance sector by a wide margin this week as the price of oil moved sharply higher on hopes of production cuts. Some of this week’s best performers are shown in the accompanying table. As you can see though in spite of the week’s strong performance these stocks are lagging far behind the overall market’s year-to-date gain of +27.8%.
Apache Corp (APA), a $6.5 billion in revenue energy company, did not participate in the week’s rally in the energy sector. The company provided an update on a new drilling project that left investors with little information and disappointed. This stock was the worst performer among the S&P 500 for the week falling -10.3%. Worst yet is that this stock is trading at the same price it did in 2001 and is off its all-time high by -86%!
Economic Indicator - Reported
The November Employment Report came in far better than economists had forecast with the economy adding 266,000 new jobs. Furthermore, the two prior months were revised higher by a combined 40,000 jobs. This month’s report was helped by the return of about 50,000 General Motors workers after a month-long strike. Aside from these manufacturing jobs, health-care, hotels and restaurants, and professional firms were all strong. Weaker sectors included retail, construction, and energy firms. This growth in new jobs helped push the unemployment rate to a 50-year low of 3.5%. One disappointment is a slowing in wage growth from a year-over-year increase of 3.1% versus 3.2% a month ago.
The ISM Manufacturing Index showed the fourth consecutive monthly decline, a reading of 48.1%, and was well below forecasts of 49.2% (anything below 50% indicates conditions are worsening). The new orders index, an important component of the overall index, dipped from the prior month and inventories dropped to a 42-month low. The trade war and uncertainty is being partially blamed for this sector’s slowdown.
Factory Orders in October increased by +0.3% for the month but this good news was offset somewhat by the prior month being revised down by -0.2%. Year-over-year orders are down -1.2% with no real sign of stabilization at this point.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Consumer Price Index (CPI)
- Producer Price Index (PPI)
- Retail Sales