U.S. markets ended a volatile month on a high note Friday. All major indices posted impressive increases for the week, buoyed by news from the Fed Reserve and international trade. The S&P 500 jumped 4.85% and the Dow increased 5.16% for the week. International Stocks rose 0.95% and the U.S. Aggregate Bond Index gained 0.13%.
To better understand last week's sharp rebound, let's take a closer look at details surrounding comments by Fed Chairman Jerome Powell and various international developments.
Last Wednesday, Powell inspired optimism in investors by claiming that interest rates are close to the current "neutral range" of 2.5-3.5%. His comments seemed to suggest that the Fed may throttle back interest rate hikes. However, minutes released on Thursday from the central bank's meeting contained no indication that the Fed had changed its policy. Therefore, we can only assume the Fed still plans on a fourth rate hike in 2018, and increases may continue during 2019, but we need to wait for more clarity from the Fed.
The G20 Summit
At the annual G20 summit, leaders from the world's 19 biggest economies and the European Union assembled in Buenos Aires. This group represents 85% of the world's economic output and 2/3 of its population. Here are a few key takeaways from the summit:
United States-Mexico-Canada Agreement
On November 30, President Trump met with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto. They signed the anticipated United States-Mexico-Canada Agreement (USMCA) to replace NAFTA. With the recent U.S. tariffs on Canadian steel and aluminum causing tension, the USMCA may start to ease the strain, although some remain skeptical. Plus, the agreement still needs to pass Congress, so its final outcome is still unknown.
Trade Talks with China
President Trump and China's President Xi met on December 1 to attempt resolving trade issues between the two countries. Since last July, the U.S. has hit Chinese goods with a total of $250 billion in tariffs and has threatened more. In turn, China retaliated by imposing $110 billion in tariffs on U.S. products. Ultimately, both countries agreed to delay any increases in tariffs for 90 days, while they attempt to iron out remaining disputes. If they cannot reach an agreement, President Trump says he will raise rates from 10% to 25%.
Other G20 Concerns
Low oil prices and oversupply continue to worry some investors, even though this situation is attractive for consumers. The leaders from two of the three largest oil-producing countries, Russia and Saudi Arabia, met to discuss reducing production and raising prices. In addition to trade issues and oil, G20 leaders are grappling with different views on key global issues and the new spat between Russia and the Ukraine.
While the Fed and geopolitical issues dominate the news cycle, it is important to remember that economic fundamentals are the long term drivers of the markets. As a whole, the economy looks strong through 2018. For example, last week we learned:
- Consumer confidence remains high, though it fell slightly in November. This dip follows an 18-year sustained peak in positive territory.
- Q3 Gross Domestic Product increased a solid 3.5%. Business investments performed better than expected, with corporate profits boosting to a new 6-year high.
- Unemployment lowered to 3.7%, the lowest it has been in at least 48 years.
As always, we remain focused on technical and fundamental indicators amidst economic and geopolitical news.