(End of Year Presents)
Tariffs avoided with Phase I trade deal between China and the U.S. was one of the catalysts this week. The other was the confidence vote in Boris Johnson signaling a high chance of BREXIT success. These two December wins cleared the path for market success of issues viewed as dogging the global economy. Probability of one or both of these being unsuccessful had many analysts and managers forecasting major headwinds.
This week a series of economic data from November also showed positive trends. Reporting this week was U.S. Housing Starts and U.S. Manufacturing Production. Manufacturing Production is a lagging area, which reflects the output of all factories in the country. It is viewed as a sub-set of industrial output. Manufacturing refers to the total production output from industries that consists of producing goods in factories or plants for a specific time period. Over the last several decades manufacturing has receded and was positioned to come back through repatriation and tax cuts. As for U.S. Housing Starts, they rose more than expected. Permit levels hit twelve (12) year highs. This appears to be driven by the lower Federal Reserve rates that also lowered mortgage rates. This bump may be over though as rates have edged back up in recent weeks.
All of these changes are upping the optimism of a Trump Bump and consumer and corporate confidence. These readings of the 4th quarter will not be available until January. While we are in a wait and see scenario the bull market definitely received a shot in the arm. In the mean-time, the Phase 1 deal is being analyzed to define is this a win or not for the U.S. Many suspect that the deal does not go far enough or if China will keep the agreement.
Markets are bound to end the year higher as tinsel and eggnog get us out of the way. Upcoming economic reports this week include a big one, GDP. This number is leaning to a higher consensus after it was revised upward last month. Forecasts show an increase from 2% to 2.1% this reporting period. Additionally, a USMCA appears to be poised to pass the House. This is the replacement for the North America Fair Trade Agreement (NAFTA) which is an agreement between Canada, Mexico and the United States. USMCA stands for U.S., Mexico, Canada Agreement. This is another trade agreement that has been reworked to benefit the U.S. One more present under the tree.
We will be watching the leading economic indicators to gauge if this was the bottom and if the economy is turning up or if there is another leg down come January. For now, enjoy wrapping presents and reaching out to loved ones as I am right now. Here is to wishing you all a very Merry Christmas and Happy Holidays.
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Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC. For questions or investment topics please email me [email protected]
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