This last Weekly Insight of 2019 highlights the end of another eventful year. We came into 2019 with some fire under our feet after closing out 2018 with increased market volatility. The VIX, a measure of market volatility, was at 30 a year ago today. Now, it’s closer to 13 and is well below its average of 19 since its inception in 1990.
Equities posted a solid week of gains. We noted at the end of November how it was rare for December to be down in back-to-back years. Despite a tough start to the month, the S&P 500 has gained in eight of the last 11 trading days. For the month, the S&P 500 is now up 1.7%, whereas small caps have gained 2.4%.
The Federal Reserve rate-setting committee voted unanimously to leave the federal funds rate unchanged. Rate cutting intervention was deemed necessary to offset slowing economic growth toward the end of 2018. The broad expectation is for rates to stay the same for at least a little while. We come to this opinion due to future probabilities of changes in the market.
Equities started the month off on a soft note with the S&P 500 falling 1.3% over the past week. Domestic small caps were down a similar number while foreign developed equities fared better with a 0.9% decline. Despite the equity drop, fixed income didn’t provide any offset as the Bloomberg Barclays Aggregate Bond Index was flat on the week.
Equities continued to bleed higher and tacked on another 1% for most large cap indices. Domestic small caps popped 2.1%. The headlines seem to attribute daily equity gains to U.S.- China comments ad nauseum, but the driving force is participants forced to buy back into a rising market. Both retail and hedge fund risk positioning have been extremely defensive despite the strong gains realized year-to-date, and over the last decade.
Equities moved higher this week as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all notched new record highs. Small caps equities lagged. Bond yields fell causing the Barclays Aggregate Bond Index to outpace the S&P 500 on the week. Rhetoric regarding the China-U.S. trade deal is not looking good.
We’ve approached the end of yet another earnings season. Currently, 92% of S&P 500 companies have reported earnings and sales for the third quarter. This season’s report shows financial results for U.S. companies are better than earlier expected. According to Refinitiv, of the companies reporting, earnings have contracted by 0.4%, which is 4.5% better than expected.
Equities moved higher this week as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all notched new record highs. The Dow Jones Transportation Average still has more than 5% to go to hit a high and offer solid confirmation that the near two-year consolidation in equity markets is ready for the next sizeable advance.
The economy is still growing. It looks like we can push recession fears back at least another two quarters. That is, if you define recession as a fall in GDP over two successive quarters. GDP growth in the third quarter came in at 1.9%. Some market participants were disappointed with this number, despite it being better than the expected 1.7%.
Equities moved higher this week as earnings take center stage. The S&P 500 advanced 0.5% and outpaced flat returns on the Bloomberg Barclays Aggregate Bond Index. The dollar has been soft as of late, which is giving a tailwind to higher beta assets and foreign equities. Foreign developed gained 0.9% on the week and emerging markets pushed up 0.7%.