Breathing A Sigh Of Consolidation As Markets Continue To Digest Trade, Brexit, Fed News

It seems that investors are breathing a sigh of relief after getting some closure on big issues last week, perhaps setting Wall Street up for smooth sailing into the holiday break. That would be a welcome difference from last year, when stocks had a pre-Christmas meltdown.

Investors appear to still be digesting welcome news that the U.S. and China have reached a preliminary trade deal.

That’s good news with an asterisk as the phase one deal has yet to be signed. But U.S. and Chinese officials could finalize the pact next month. Optimism about the deal is helping crude oil this morning as a stronger global economy could help boost demand. U.S. crude recently pushed above $60 per barrel. While it might be a little premature to call it an upside breakout, the crude rally is certainly something to keep an eye on. 

The market also appears more relaxed after a decisive election in Britain removed some uncertainty about Brexit. Closer to home, the Federal Reserve stood pat on interest rates, as expected, and indicated the bar would be pretty high on its next move.

In corporate news, Bed Bath & Beyond Inc. BBBY said six senior executives are leaving or have left the company. The move comes after the stock has struggled this year but has regained some ground in recent days. Still, sometimes cleaning the house can be a good thing. 

Chinese Economic Data Puts Icing On The Cake

Good news related to China kept on coming Monday. 

As investors continued to be optimistic after last week’s news that the U.S. and China had agreed to a phase one trade deal, fresh economic data from the world’s second-largest economy added icing on the cake. 

Industrial production and retail sales numbers from the Asian nation came in better than expected, helping to ease some concerns about China’s economy even as the interim trade deal seems like it could pave the way for increased growth there.

Now that the U.S. is scaling back some already-imposed tariffs and nixing the extra ones that were scheduled to come online earlier this month, the Chinese economy could get a boost going forward. Also, with the Dec. 15 tariffs that targeted consumer goods including Apple Inc.'s AAPL iPhone not materializing, it could mean the U.S. consumer won’t have to face higher prices for those goods if retailers had decided to pass along tariff-related costs. 

The first-round trade deal also marks a de-escalation between the world’s two largest economies. Still, there are issues to work out if another phase trade deal is to be signed. And, we have to remember that this interim deal isn’t expected to be signed until January. 

Consumers In Focus

Still, the cancelation of the Dec. 15 round of tariffs offers another shot in the arm for U.S. consumers who have also been helped by low interest rates and a strong jobs market. 

Later this week, the market is scheduled to get a peek into two companies that have their fingers on the pulse of consumers when Nike Inc NKE and FedEx Corp. FDX report earnings. 

As NKE ramps up direct-to-consumer sales and sees its online sales post gains, the company is taking advantage of the new economy—which is less reliant on traditional brick-and-mortar stores—where FDX also plays a huge role. And as more consumers have more money in their pockets with the strong jobs market, it stands to reason that these two companies would be among those doing well. 

Also later this week, the market is scheduled to get a fresh reading on the Fed’s preferred inflation gauge, in the form of the core PCE price index, which is expected to show a rise of 0.2% in November, according to a Briefing.com consensus.

Recent core CPI data show inflation at 2.1% on an annual basis, and the most recent core PCE price index showed an annual rise of 1.6%. With the jobs market so tight and economic indicators generally sound, it could be interesting to see whether this week’s PCE number gets the yearly figure closer to the Fed’s 2% target. 

FIGURE 1: LOSING ALTITUDE. Yesterday, the Dow Jones Industrial Average($DJI - candlesticks) didn’t perform as well as other stock indices such as the broad-based S&P 500 Index(SPX - purple line). A nearly 4.3% drop in Boeing(BA), which has the largest percentage weight in the 30-stock $DJI, helped cap its gains. BA shares were under pressure after The Wall Street Journal reported the jet maker was considering halting or further cutting production of its 737 MAX amid uncertainty over the planes’ return to service. The company late Monday confirmed it would suspend production, pushing its shares down another 1.3% in premarket trading this morning. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Healthy Housing: There have been lots of winners during the 2019 trading year, and the housing market participated. A strong jobs market and low interest rates have helped boost the PHLX Housing Sector Index (HGX) around 45% year to date through Monday’s close. When people are confident in their employment, they’re often more willing to shell out for big purchases such as a home. And when mortgage rates are lower, that can often entice buyers. 

Strong NAHB Index: The latest numbers from the National Association of Home Builders/Wells Fargo Housing Market Index were out Monday and also painted a picture of a strong home-building industry. Builder confidence in the market for newly-built single family homes rose five points to 76 in December, marking the highest reading since June 1999.
And November’s figure was upwardly revised. “Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates, and a strong labor market,” according to NAHB Chairman Greg Ugalde.

More Housing Data This Week:This morning, numbers on housing starts and building permits for November came in better than expected, adding to the narrative that the housing market is doing well. We’ll get another couple of looks at the housing market later this week when mortgage applications data and then existing home sales numbers come out. 

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