Weekly Market Update (November 25 – November 29, 2019)

By Craig Fehr November 29, 2019

The U.S. stock market hit another all-time high last week -- its 26th of the year -- on continued optimism that the US and China are making progress toward a "Phase 1" trade deal. Fresh data also showed the economy remains on sound footing with a decrease in the number of people applying for first-time unemployment benefits and a rise in October personal spending, the eighth straight monthly increase, signaling consumers remain in fairly healthy shape heading into the holiday season.

Thanks for the Market That Keeps on Giving
Last week brought our holiday opportunity to focus on the things we're thankful for. The market has made a convincing case for its inclusion on our list. Stocks are having their best year in more than half a decade, and bonds are up by the most in 17 years. While we can certainly appreciate this year's performance, investors shouldn't take it for granted. We think conditions remain sufficiently nourishing for an extension to the bull market, but not without bouts of indigestion.

In addition to a time for giving thanks and exceeding a reasonable calorie intake, Thanksgiving marks a turn into the homestretch for the year and shifts the attention to the holiday shopping season. With that in mind, we've dished up some holiday perspectives on market performance and the role the consumer is likely to play. 

Turkey-day track record

  • The stock market has historically done well after Thanksgiving. Since 1950, the average return in December has been 1.5%, with the market logging a post-holiday gain in 81% of those years1. When the market rose between Thanksgiving and year-end, it went on to deliver a positive return the next year 77% of the time1.  Finishing the year on an up note tended to be part of a broader move that saw market gains continue. 
  • In the last 70 years, the market has come into Thanksgiving with a year-to-date gain of 20% or more 18 times, including this year. The average return in the following year was 16%1. While trees don't grow to the sky and we don't anticipate gains of that magnitude in 2020, this demonstrates that strong years don't have to be followed by disappointing ones.
  • Historical performance over short periods of time are not a predictor of future performance, but Thanksgiving comes at a time in the year that offers an ability to take stock of market conditions and trends and assess what they mean for the broader path ahead. We think 2019's rally is reflective of the still-positive fundamentals underpinning this market.    

Consumers in control

  • Despite rising recession worries last December and again this August, we have maintained our stance that an economic downturn is not imminent. This is predicated on our view that the economy will ultimately go where consumers lead it.  After all, 70% of U.S. GDP is household spending, and against the current backdrop of historically low unemployment (3.6%), rising wages (3%-plus), healthy confidence and lower debt burdens (household debt-service payments as a % of disposable income is at their lowest level in more than 40 years2), consumer spending is poised to rise again next year.
  • Thanksgiving typically ushers in the holiday shopping blitz with Black Friday.  While still an important (and symbolic) day, consumer spending habits are evolving. More consumers are shopping outside of the traditional holiday window and are buying more online, giving rise to the prominence of Cyber Monday. As a result, retailers are offering deals earlier, and shoppers are shopping outside the traditional window because this year there are six fewer days between Thanksgiving and Christmas. A National Retail Federation (NRF) survey showed that, on average, consumers have already completed 24% of their planned shopping, compared with 16% at this same time 10 years ago. More importantly for the economy, NRF data also show that consumers expect to spend 4% more this year compared with 2018. 
  • The bottom line: consumers are in a good position, which we think will extend this economic expansion. Holiday shopping is a single but important measure of the outlook for consumption. In our view, consumption will form the foundation for moderate growth in the coming year. 

A good recipe, but watching for a sugar high

  • The recipe for the recent rally should support markets again in 2020… The current combination of positive GDP growth, modestly rising corporate profits, and supportive Fed policy will, in our view, persist next year. There have been 16 years since 1950 when unemployment was below 4.5% at Thanksgiving time2.  The average increase in consumer spending (70% of GDP) in the following year was 3.1%, with zero instances of consumer spending contracting. The average return for the S&P 500 in the following year was 9.9%1.
  • …but future gains may not be quite as sweet.  The pendulum of market sentiment has swung firmly into optimistic territory lately. Fears of a recession have dissipated, comfort with the Fed's interest rate plans has increased, and the expectations of a "Phase 1" trade deal with China have firmed. We doubt these prevailing market views will remain as confident or in concert as we progress into 2020.  To us, this doesn't mean the bull market is facing its demise, but it does mean the recent exceptionally low stock-market volatility and the 25% annual gains won't be replicated as we advance.

Craig Fehr, CFA
Investment Strategist

Sources: 1. FactSet, S&P 500 index total return.  2. Federal Reserve Board

Index Close Week YTD
Dow Jones Industrial Average 28,051 0.6% 20.3%
S&P 500 Index 3,141 1.0% 25.3%
NASDAQ 8,665

1.7%

30.6%

MSCI EAFE 1,974.47 0.5% 14.8%
10-yr Treasury Yield 1.78% 0.0% -0.9%
Oil ($/bbl) $55.42 -4.1% 22.0%

Bonds

$112.86 0.0% 8.6%

Source: Morningstar, 11/29/19.  Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results. 

The Week Ahead

Looking ahead, jobs , manufacturing and services PMI, and unemployment rate, are set to be released in the post-thanksgiving week as analysts look to the health of the economy to round out the year.

Review last week's weekly market update.

Important Information

The Weekly Market Update is published every Friday, after U.S. markets close.

The Dow Jones Indexes are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use.

All content of the Dow Jones Indexes © 2017 is proprietary to Dow Jones & Company, Inc.

The Dow Jones, S&P 500 and Barclays Aggregate Bond Indexes are unmanaged and are not meant to depict an actual investment.

Past performance does not guarantee future results.

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Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.

Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

This information is approved for use with the public.

It is intended for informational purposes only.

It is believed to be reliable, but its accuracy and completeness are not guaranteed.

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