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Market Commentary for the week ending January 4th, 2020
- News of an escalating conflict between the U.S. and Iraq resulted in an end-of-week selloff
- Gold surges as investors seek a safe haven
- Economic data remains relatively strong with Consumer Confidence high and home prices increasing
Market Performance Summary
Notable Market Headlines
Tensions rise between the U.S. and Iraq following the killing of General Soleimoni in an airstrike ordered by President Trump. Iran is threatening retaliation for the killing with the event also creating tremendous uncertainty about the relationship between the U.S. and Iraqi. After rallying sharply on the first trading day of the year, U.S. stocks gave back a large portion of those gains but still remain higher after two days of trading in 2020.
At the close of trading on Friday, U.S. large stocks as measured by the S&P 500 was up +0.1% year-to-date but was lower for the shortened week of trading by -0.1% (this includes the two days of trading prior to New Year’s Day). Small U.S. stocks started 2020 much like 2019 ended lagging behind large U.S. stocks down -0.3% year-to-date. The NASDAQ Composite, generally representing large technology stocks, came out of the starting gate strong up +0.5% for the year.
International stocks are mixed in the first couple days of trading in 2020 with developed markets off -0.2% while emerging markets are higher by +0.1%. Among the best performing emerging markets is Hong Kong up +1.0% for the year but is still more than -9% off its recent high in May of last year.
The non-traditional asset classes turned in the best performances of the week with Gold surging +2.5% as investors turned toward investments perceived as more safe havens. Commodities were higher by +0.8% impacted by a rally in oil prices on news of the heightened conflict in the Middle East. Real estate stocks also gained for the week up +0.3%.
Bonds were higher by +0.3%. The yield on the benchmark 10-Year U.S. Treasury Bond fell to 1.789% after closing 2019 at 1.920% driven by the stock market’s drop on Friday and investors jumping into safer bonds.
The increasing tensions in the Middle East drove oil prices higher helping the stock prices of many energy companies with Occidental Petroleum (OXY) leading the pack up +8.6%. Other winners as a result of the conflict were those serving our country’s military defense including the two leaders Lockheed Martin (LMT) and Northrop Grumman (NOC) up +5.1% and +8.2% respectively.
Lamb Weston Holdings (LW), the world’s second largest producer of frozen potato products such as French fried and tater tots, reported a better than expected quarter. Sales jumped +12% topping $1.0 billion for the quarter with earnings per share coming in at $0.95 which was well above Wall Street’s expectations. This is an S&P 500 stock that is likely under the radar of most investors but has performed very well over the past few years as the accompany graph illustrates. This week the stock was the S&P 500’s best performer gaining +8.7%.
Incyte Corp. (INCY), a $16.8 billion in market value biotechnology company, reported that results from its Phase 3 trial of one of its more promising drugs failed to meet hopes and expectations. Several Wall Street analysts downgraded their rating of the stock and lowered price targets. This wall all bad news for investors in this stock with it falling -11.9% for the week making it the worst performer among the S&P 500.
Economic Indicator - Reported
The S&P CoreLogic Case-Shiller index showed home prices up nationally by +3.3% year-over-year which is a small improvement over the prior month. The strongest market was Phoenix with a jump in prices by +5.8% followed by Tampa and Charlotte up +4.9% and +4.8% respectively. The general expectation is that home prices will continue to rise in 2020 with some people thinking that more affordable locations may see the biggest gains.
Consumer Confidence was reported down just slightly from the prior month but meaningfully below economists’ expectations. By historical standards confidence is high but is off its peak.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Employment Report
- Factory Orders
- Trade Deficit