Financial Sector Breakout, Record Setting Trade Deficits, Underwhelming Regional Fed Reports

We’re back! We hope you all made it home safely from holiday travels and are not stuck in an airport or shoveling snow like a many of our colleagues. There’s a lot to turn our attention to this week including today’s testimony from the newly appointed ECB President, Christine Lagarde, in which she promised an “overarching review of ECB business ranging from how it defines its inflation objective to whether it includes a fight against climate change among its responsibilities.” We’ll see how her actions effect Europe’s economy but most European stock indexes closed in the red today. Today also marks the beginning of the UN Climate Change Summit and tomorrow, the start of the NATO Summit. Needless to say, political tensions are running high this week.

Now let’s turn our focus to the markets: Despite being down slightly today, the U.S. Financial Sector is inching towards a new high. Year-to-Date through 11/29/19 the S&P 500 index is up 25.3%. While the chart below shows that the Index can still achieve double digit gains in the year following a 20%+ annual return, there are other factors at play currently. Only time will tell what 2020 will bring, but the Oreo Fable suggests we should be prepared for a downturn. China’s retaliatory sanctions against the U.S. for supporting pro-democracy movements in Hong Kong were not related to trade as the administration claims a phase one trade deal is almost final. Let’s hope this is true given budget deficits continue to set records. China’s PMI is showing promise while the U.S. Regional Fed Reports have been lackluster.

1. The Financial Sector looks poised to finally break out to a new high…

2. Despite what many pundits are saying, here is the historical record:

3. Lower quality junk bonds are seeing their yields and spreads widen out. Is the canary still singing?

4. This month’s regional Fed reports have been underwhelming…

5. China’s Purchasing Managers Index fought its way back to growth (barely. but above 50)

6. With all the news and jawboning about the trade situation, it is probably worth pointing out that our recent trade deficits have never been higher…

7. Do other countries also make you include the cost of a ~$1,000 phone on top of the plans?!

If your food coma kept you from reading our monthly newsletter on Friday, you may want to refresh your memory on the top news stories and market action from November as you prepare to embrace the final month of 2019. And if you haven’t already, subscribe to BCM’s newsletter here so you don’t miss our special year-end edition at the end of this month.