U.S. stocks took a breather last week, declining modestly, after six consecutive weeks of advances. Volatility remained low, but mixed. U.S./China trade headlines left investors wondering whether a "Phase 1" trade deal can be signed before year-end. On the economic front, the preliminary U.S. Purchasing Managers' Index for November showed improvement in economic activity, which supports our view that the worst of the manufacturing slowdown may have passed.
Looking Below the Surface of the Market Rally: Five Important Trends
The popular phrase, "It's not just what you said, but how you said it," acknowledges the effect of both content and delivery. Or said another way, the outcome is just as important as the process behind it. Improbable outcomes happen but studying the drivers behind these outcomes can be informative about the likelihood of such outcomes repeating or persisting.
When it comes to the market, it's not simply where it goes, but how it gets there. Stocks experience rallies and pullbacks, and an examination of the underlying drivers and the composition of that performance can shed light on the potential for those trends to persist. The market has performed quite well of late -- whether you define that as 2019 or the last three months (which have gains of 26.0% and 6.6%, respectively1). Do we think that will continue?
Speaking of fundamentals, as we noted, it's not just what the market does, but also how it does it. Here are five characteristics of the recent rally and what these characteristics signal about where we might go from here:
Craig Fehr, CFA
Sources: 1. Morningstar 2. FactSet 3. Bloomberg
|Dow Jones Industrial Average||27,876||-0.5%||19.5%|
|S&P 500 Index||3,110||-0.3%||24.1%|
|10-yr Treasury Yield||1.77%||-0.1%||-0.9%|
Source: FacSet, 11/22/19. *5 day performance ending Friday. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.
In a holiday-shortened week, important economic data being released include consumer confidence on Tuesday and third-quarter GDP (second estimate), along with durable goods orders and personal income, on Wednesday.
The Week Ahead
The Weekly Market Update is published every Friday, after U.S. markets close.
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