Gradient Investments Weekly Talking Points 12/16/19

All data is for the week ended December 13, 2019.

Stocks

Markets reached new highs on Thursday boosted by reports the US & China were ready to announce a trade deal. Once the deal was broadcast on Friday, markets were little changed. See Economic Data below for details. The S&P 500 rose 0.77% for the week, with the Russell 2000 up 0.30% and the NASDAQ up 0.93%. Overseas markets performed better, with developed markets (MSCI EAFE) rising 1.72% and emerging markets (MSCI EM) gaining 3.63%. In the US technology and consumer discretionary sectors were the best performers while real estate and communications services lagged.¹

Fixed Income

Treasury yields climbed following reports of a US-China trade deal, increasing the potential for rising global economic growth. The European central bank confirmed that monetary policy would stay “easy” or highly accommodative under their new president Christine Lagarde, leaving its benchmark deposit rate at negative 0.50%. The Federal Reserve, as expected, kept interest rates on hold at their Wednesday meeting and indicated that interest rates would stay lower for longer unless there was a sustained increase in inflation. The benchmark 10-year Treasury rate declined 2 basis points to 1.82%.¹

Commodities

The US dollar has been weakening in recent weeks against a basket of currencies (down 2.2% since the end of September²), pushing up the prices of commodities since they are priced in the US currency. The British pound, in particular, moved higher against other currencies following the current prime minister’s electoral win with his party’s sizable majority of seats in Parliament -- insuring enough votes to pass his “Brexit” agenda, viewed as positive for the British economy.

Baker Hughes reported active U.S. rigs drilling for oil rose by 4 to 667 this week. That followed declines in each of the last 7 weeks.³ Oil prices finished the week at $59.78 per barrel for West Texas crude, up 1%.⁴

Economic Data

The US and China agreed on the first phase of a trade deal– including the avoidance of US tariffs on $150 billion of Chinese goods that had been expected to go into effect this weekend, maintaining 25% US tariffs on approximately $240 billion worth of Chinese goods, with China buying at least $50 billion of agricultural goods from the US in 2020. The agreement must get government approvals in each country before it may be finalized.

Retail sales came in lighter than estimates, rising just 0.2% in November. The weakness is likely due to the late Thanksgiving this year which allowed just 2 days of holiday shopping by the 30^th. More telling, we believe, will be the combined November-December sales data when it becomes available.

Company News

Bristol-Myers Squibb (BMY), a Core Select and G50 holding, was awarded $752 million in a patent infringement dispute with Gilead Sciences over a patent exclusively licensed to BMY from Memorial Sloan Kettering Cancer Center.⁷ Shares rose 6.5% for the week.

Las Vegas Sands (LVS), a G50 holding, rose 7.6% last week on expectations for increased revenue and earnings as a result of improved trade relations between the US and China. The gaming, hotel and resort company generates approximately 60% of its pretax profits from Macau, China.

National Grid plc (NGG), a G40i holding, gained 6% last week, responding to a more positive economic growth outlook for Britain following the elections. This electricity and gas utility company is focused on transmission and distribution activities in the UK and US.

Taiwan Semiconductor Manufacturing (TSM), a G40-I holding, shares gained 6% last week after reporting a strong 9.7% year-over-year gain in revenues for the month of November; year-to-date revenues were up just 2.7%.⁸ Shares also gained once the US-China trade deal was reported.

Did you know ...

The glasses Urkel wore were in fact a pair of Jaleel White’s dad’s glasses.  When he auditioned for the role, he had intended to wear old style black glasses with tape around the middle but instead grabbed his dad’s glasses.  They were over-sized as his dad was a dentist and primarily used them to keep particles from flying into his eyes.  Jaleel then came up with the walk, posture, and nasal voice of the character and went to the audition for Family Matters – and the rest is history.