Investment Commentary – December 11, 2018

Year to Date Market Indices as of Market Close December 11, 2018
Dow 24,370 (-1.41%)
S&P 2,636 (-1.38%)
NASDAQ 7,031 (-1.86%)
Gold $1,248 (-6.76%)
OIL $51.72 (-6.69)
Barclay Bond Aggregate (-0.94%)
Fed Funds Rate 2.25% (last increase was 9/26/18)

Stocks post flat finish in choppy session

Bulls and bears fought to a draw on Tuesday, leaving the S&P 500 little changed at the end of a choppy session that saw major indexes flip between gains and losses. Stocks rallied in early action on optimism surrounding renewed U.S.-China trade talks, but lost altitude toward midday and then lost ground after President Donald Trump threatened a government shutdown over border-wall funding in a meeting with Democratic congressional leaders. Stocks then saw choppy action through the afternoon. The S&P 500 SPX, -0.04% ended the day with a loss of less than 0.1% near 2,636.83, according to preliminary figures, while the Dow Jones Industrial Average DJIA, -0.22% fell around 53 points, or 0.2%, to end near 24,370. The Nasdaq Composite COMP, +0.16% ended 0.2% higher near 7,032.

European markets rally on upbeat data, trade-talk hopes

European markets got into rally mode on Tuesday, boosted by upbeat economic data out of the region’s biggest economy, and positive signals on the global trade front.

Pharmaceuticals, oil and auto stocks were driving the gains.

What did markets do?

The Stoxx Europe 600 SXXP, +1.53% ended 1.5% higher at 344.18, after closing down 1.8% on Monday.

Germany’s DAX 30 DAX, +1.49% rose by 1.5% to finish at 10,780.51, while France’s CAC PX1, +1.35% advanced 1.4% to 4,806.20.

The U.K.’s FTSE 100 UKX, +1.27% jumped 1.3% to 6,806.94, and Italy’s FTSE MIB Italy index I945, +0.98% gained 1% to 18,591.01.

What is driving the markets?

President Donald Trump tweeted Tuesday that the U.S. was engaged in “very productive conversations” with China. A fresh round of trade talks kicked off late Monday via a phone call between Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

Along those lines, auto stocks in Europe and the U.S. surged after a report from Bloomberg News that the Chinese government is reviewing a proposal to cut tariffs on U.S. made autos to 15% from 40%.

Cheer on the European economic front also lifted investor spirits. The ZEW economic research institute reported that German economic expectations rose in December, though they remained below the long-term average. Those expectations came in above forecasts.

And in France, markets got a lift after President Emmanuel Macron announced plans to cut taxes and lift wages for workers, in a bid to calm the civil unrest that has been gripping Paris and other cities.

Stocks whipsawed after Trump spars with Pelosi and Schumer

So much for turnaround Tuesday on Wall Street. Tumultuous Tuesday is more like it.

All three of the major indexes were whipsawed after a contentious public meeting between President Donald Trump and Democratic congressional leaders Chuck Schumer and Nancy Pelosi.

The Dow ended the day with a more than 50-point loss. But it had been down more than 200 points earlier in the day. The S&P 500 was flat while the Nasdaq finished Tuesday with a slight gain after both also briefly fell into negative territory.

Stocks fell from their peaks after Trump told Pelosi and Schumer that there must be funding for a US-Mexico border wall from Congress and warned that he would shut down the government without it.

But investors were heartened earlier in the day by renewed hopes that the United States and China might be able to reach a new deal on trade, despite tensions over the arrest of the CFO of Chinese tech giant Huawei.

Trump tweeted Tuesday morning that there were “very productive conversations going on with China!” and added that people should “watch for some important announcements!”
Still, the market seemed skeptical. Dow components with significant exposure to China, including (AAPL), Boeing (BA), 3M (MMM) and McDonald’s (MCD), were all lower.

Around the web

Market mood swings: Stocks have been unable to maintain consistent direction for more than a few days at a time since the S&P 500 hit a record high on September 20. Since then, the market has recorded three steep declines followed by three partial or full recoveries. Overall, the index is down about 10% from its record and nearly 2% below its year-end 2017 level.

Trade drama: Sentiment over the U.S.-China trade dispute shifted following talks between the two countries at a global summit. Initial optimism over a 90-day truce in tariff increases gave way to pessimism as it became apparent that the sides remained far apart. The U.S.-requested arrest of a Chinese technology company executive visiting Canada added further uncertainty.

Brexit vote ahead: The British House of Commons was scheduled to vote Tuesday on whether to accept the Brexit agreement that Prime Minister Theresa May recently negotiated with the European Union. The outcome was expected to have significant implications for British politics, the global economy, and world financial markets.

The Markets 10 years ago vs. today

DOW 8,635/25,027 (+184%)
S&P 500: 845/2,700 (+201%)
Nazdaq: 1,509/7,158 (+366%)

Other Notable Indices (YTD)

Russell 2000 (small caps) -4.93
EAFE International -13.94
Emerging Markets -16.89
Shiller Annuity Index 3.64

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.