Capital Market Implications
Steady wage gains and higher stock levels helped boost consumer confidence recently, as the University of Michigan Sentiment Index remained close to the top of its 40-year range (95.7). According to the U. of Michigan survey: “The strongest aspect of the current economy has been jobs and wage gains. Although consumers have become somewhat more cautious spenders, they see no reason to engage in the type of retrenchment that causes recessions.” Consumers’ long-term inflation expectations edged slightly higher in November, nonetheless, they remain near historically low levels at 2.4%. Finally, less than 2% of consumers in the survey referenced the impact of impeachment on their economic outlook.
Last week, with limited news regarding the US-China trade negotiations and Washington’s impeachment efforts grinding on, stocks managed to rally for the fifth consecutive week. Thus, last week, the S&P 500 Index gained 0.9% while the Dow Jones Industrial Average increased 1.4%. In general, cyclical sectors advanced while interest-rate sensitive sectors such as real estate and utilities retreated. International markets also remained buoyant, as developed foreign markets rose 0.5% and emerging markets climbed 1.5%. Longer-dated interest rates surged last week sending the yield on the 10-year Treasury to a 5-week high of 1.9%. When yields rise bond prices fall and that was the case last week. By the end of the week, only high yield bonds managed to remain in the black, as they closed flat overall. On the other hand, the Barclay’s US Aggregate Index and US corporate bonds lost nearly -1.0% while 10-year municipals bonds were off -0.6%.
