Market Perspective for December 13, 2019

Equities rallied as the U.S. and China finalized a phase-one trade agreement. The Nasdaq advanced 0.91 percent, the S&P 500 Index 0.73 percent and the Dow Jones Industrial Average 0.43 percent on the week.

The phase-one trade deal was light on details, but the U.S. will not hike tariffs on December 15 and it will rollback some tariffs as a first step. China says it will purchase more agricultural products, although there are no specific numbers. China reduced imports by about half this year, from its prior high of approximately $20 billion. President Trump said phase-two negotiations will begin immediately, although a deal is unlikely before the 2020 election.

iShares China Large-Cap (FXI) gained 3.32 percent for the week. iShares MSCI Emerging Markets (EEM) advanced 3.15 percent, PowerShares DB Agriculture (DBA) 1.85 percent and VanEck Agribusiness (MOO) 1.83 percent.

VanEck Semiconductor (SMH) jumped 4.29 percent as many semiconductor firms export to China. SPDR Technology (XLK) advanced 2.01 percent.

The Federal Reserve held interest rates steady. Chairman Jerome Powell reiterated that it would take significant inflation for the Federal Reserve to hike interest rates. The Fed also announced its planned repo operations for the next month. It could pump as much as $500 billion into the financial system through January 14. SPDR Financial (XLF) gained 1.05 percent for the week, with the gains occurring after the Fed’s announcement.

Consumer inflation was higher than expected at a headline 0.3 percent in November, but core CPI met expectations of 0.2 percent. Retail sales were weaker than forecast in November, growing 0.2 percent. This was down from 0.3 percent in October. However, with Thanksgiving coming late this year, the holiday shopping season was cut short. Cyber Monday fell in December and online sales are an growing share of the total retail pie.

British voters handed Prime Minister Boris Johnson the largest majority for his party since the Margaret Thatcher era. This was a clear vote in favor of finalizing the United Kingdom’s exit from the European Union. The pound rallied more than 3 percent this week versus the U.S. dollar. iShares MSCI United Kingdom (EWU) gained 3.59 percent.

Adobe (ADBE) beat earnings and revenue forecasts, lifting shares more than 4 percent on Friday. Broadcom (AVGO) also beat both profit and sales estimates, though its shares slipped more than 3 percent. Ciena (CIEN) was another winner, with shares climbing 18.23 percent following their earnings report. Oracle (ORCL) finished down only 0.57 percent after beating earnings, but missing on revenue.


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