Market Insights

Stocks rose to new highs last week as China and the U.S. formalized a trade deal, easing tensions between the world’s two largest economies.

The S&P 500 rose 0.7 percent between Friday, December 6, and Friday, December 13. It was the 10th positive week in the last 11. The index is now 4.7 percent above its previous all-time high from July.

President Trump reduced tariffs under the “phase one” of his trade deal with Beijing. In return, the Asian country will purchase more U.S. agricultural products and energy. The big litmus test going forward will be Beijing’s stances on intellectual property and forced technology transfers.

There were two other big events last week:

• The Federal Reserve pledged to keep interest rates unchanged for all of next year.
• Boris Johnson won a strong majority in the U.K. Parliament. That lays the groundwork for a potential end to Europe’s Brexit drama starting next month.

Global Stocks Advance

The China and Brexit eased fears about the global economy, while the Fed pushed the U.S. dollar lower. All three of those stories helped lift global stocks, which have badly lagged domestic equities for the last two years.

Semiconductors were the biggest winners overall, surging more than 4 percent to new all-time highs. The Chinese trade truce, an uptick in orders and hopes of 5G networking helped fuel the move.

Gold miners also had their best week in 2-1/2 months after the Fed’s low-rate pledge weighed on the greenback. Silver futures (@SI) had their biggest weekly gain since the end of August.

Solar energy stocks were another strong corner of the market, gaining more than 3 percent as investors returned to a group that began the year with a big surge.

Real-estate investment trusts (REITs) were the only major sector to fall last week. Typically viewed as domestic safe-havens, investors dumped them in favor of riskier global stocks.

What Happened to the Consumer?

Other economic reports last week were less impressive. Initial jobless claims spiked to their highest level in more than two years. That was totally unexpected following November’s huge payrolls report.

Retail sales also missed estimates again. Let’s keep an eye on this trend because consumer spending helped support growth in the spring. If it continues to disappoint, some of the recent optimism about the U.S. economy may fade.

In contrast to those domestic numbers, Germany’s Zew confidence survey leaped to a 22-month high. The country’s Ifo Institute also raised its gross domestic product forecast for next year and said that a manufacturing “free-fall has stopped.” Its Munich-based researchers added that “gradually, light is appearing at the end of the industrial economic tunnel.”

Leaders and Laggards

Western Digital (WDC) had the biggest gain in the S&P 500 last week. The data-storage company rose 11 percent after executives presented at the Barclays Global Technology, Media and Telecommunications Brokers conference.

Copper miner Freeport-McMoRan (FCX) rose 10 percent, after the China news lifted industrial metals. Skyworks Solutions (SWKS) was close behind as analysts said the chip maker is poised to lead 5G networking in the U.S.

Cosmetics company Coty (COTY) found itself at the bottom of the totem pole, dropping 7 percent on a bearish note from Wells Fargo. Two REITs, Welltower (WELL) and Healthpeak Properties (PEAK), followed with 6 percent declines.

We now enter the last busy week of the year, followed by the Christmas and New Year holidays.

Today brings the New York Fed’s Empire Manufacturing Index and NAHB’s homebuilder sentiment index.

Housing starts, building permits and industrial production follow tomorrow. FedEx (FDX) also reports earnings.

Wednesday brings crude-oil inventories and results from Micron Technology (MU).

Thursday features initial jobless claims, the Philadelphia Fed’s manufacturing index, existing home sales and Nike (NKE) earnings.

The week ends with “quadruple witching” Friday: the simultaneous expiration of stock-index futures, stock-index options, stock options and single-stock futures. Personal income and spending are also due, along with revisions to third-quarter GDP and consumer sentiment.