• Economic data continues to be mixed, with strength in the labor market and the consumer sector offset by weakness in global trade and manufacturing. Looking ahead, we think it is more likely than not that the positives will outweigh the negatives, helping the global economy to improve modestly in 2020.

• Stock prices have been rising in anticipation of stronger growth. We remain concerned that prices may have gotten ahead of fundamentals, which causes us to be only mildly constructive toward equities. But that doesn’t mean we aren’t finding select investment opportunities.

Economic data was uneven last week, and investors continued to focus on the on-again, off-again prospects for a U.S./China trade deal. Global stock markets were mixed, and the S&P 500 Index climbed very modestly, ending just below its all-time high.1 The best performing areas of the market were energy, consumer staples and health care, while the industrials, consumer discretionary and technology sectors lagged.1 In other markets, Treasuries showed weakness as the yield curve steepened somewhat while oil prices experienced their strongest week since June after OPEC agreed to additional production cuts.1

Weekly Top Themes

1. Strong jobs growth data should stave off prospects for a near-term Fed rate cut. Jobs growth accelerated sharply in November. The data showed 266,000 new jobs were created last month, while the unemployment rate was down to 3.5%. Average hourly earnings climbed as well.2

2. We hold out hope for a modest U.S./China trade deal, but trade uncertainty remains a market risk. In August, President Trump signaled that the parties were very close to an agreement, which helped the S&P 500 Index rise 10% over the next 90 days.1 More recently, markets have been rattled on-and-off by fears that a deal will fall through. It’s becoming nearly impossible to gauge what might actually happen on the trade front, but our best guess is that we will see a modest deal with the U.S. scaling back tariffs in exchange for the Chinese increasing agricultural imports. We could also see indications that such issues as intellectual property rights could eventually be discussed.

3. Manufacturing remains a source of weakness for the economy. The ISM Manufacturing Index disappointed by falling from 48.3 in October to 48.1 in November.3 Clarity on the trade front would help this sector, but manufacturing weakness remains a concern.

4. In contrast, consumer spending continues to be a strength. The University of Michigan’s Consumer Sentiment Index rose from 95.5 to 96.8 in November, showing that consumers remain confident about the state of the economy and are increasing spending levels.4

5. Looking ahead to 2020, signs of hope are emerging that global manufacturing could stabilize. Global Purchasing Manager Indexes have been showing signs of life, particularly when it comes to new orders, which rose for a second consecutive month in November.5 New orders are the forward-looking component of the index, and improvement there is consistent with our view that the global economy could pick up modestly in 2020.

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