Over the past week, several positive economic and geopolitical events occurred that should reinforce the markets “risk on” behavior as we close out 2019. As a result of this and our assessment for future growth prospects, our Investment Policy Committee have reiterated our asset allocation decisions to be slightly overweight U.S. equities, neutral international equities and slightly underweight the fixed income markets.
While we expect volatility to ultimately increase in advance of the 2020 elections, we are comfortable with the fundamentals which support the economy. While the economy may be slowing, we expect a soft landing as GDP remains positive, monetary policy remains stimulative and earnings growth reaccelerates in the new year.
A look back at the week that was:
- Last Friday it was announced that the jobless rate in the U.S. dropped back down to 3.5% in November, tying the lowest level in 50 years.
- Mondays reading of the NFIB Small Business Optimism Index revealed that small-business owners’ confidence in the U.S. economy rose in November, its largest month-over-month gain since May 2018, as owners continued to invest, hire and increase wages. The survey is a monthly snapshot of small businesses in the U.S., which account for nearly half of private-sector jobs.
- On Tuesday, the Trump administration and leading democrats in the House agreed in principal to a trade agreement with Mexico and Canada. The bilateral trade agreement, USMCA replaces NAFTA which has been in place since 1989.
- The U.S. central bank’s Federal Open Market Committee on Wednesday opted to hold its benchmark fed funds rates steady at a range of 1.5% to 1.75% and signaled no change was likely through 2020. In keeping monetary policy accommodative, the Fed has signaled that the economy can sustain a low unemployment rate for a considerable amount of time without creating inflationary pressures.
- Numerous reports on Thursday claim that the US and China reached a limited trade deal which would prevent new tariffs (planned for December 15th), roll back some existing tariff rates by 50 percent and includes a commitment of more than $40 billion in agricultural purchases by China. While the Chinese have not confirmed the “agreement in principal”, postponing additional tariffs and reducing existing will be a welcome sign to both businesses and consumers while the commitment to agriculture purchases will be a relief to Americas farmers. In addition, the move should be felt globally as the thawing in Sino-U.S. trade tensions will help unclog global trade and ultimately benefit manufacturers worldwide.
- U.K. Prime Minister Boris Johnson vowed on Friday morning to “get Brexit done” by January 31st, with “no ifs, no buts, no maybes,” following his Conservative Party’s (Tories) landslide victory in Thursday’s general election. The result should prevent a “hard BREXIT” as the Conservative Party negotiates the U.K.’s exit from the European Union.