A strong day. Global stocks are taking a breather after a strong day full of milestones. The S&P 500 Index notched its third consecutive record high on news of a partial U.S.-China trade deal. The Stoxx 600 Index of European stocks closed at its first record high since April 2015, and the Nikkei Index hovered around a 14-month high first reached late last week. Even though developed-market stocks have been the biggest story in global equities these days, we still see more opportunity in U.S. and emerging-market stocks due to relatively better economic outlooks.
Bumpy ride for yields. The 10-year U.S. Treasury yield was unchanged last week, but it was a bumpy ride day-to-day for fixed income investors. The 10-year yield moved an average of 5 basis points (0.05%) per day, ending the week just one basis point (0.01%) lower. The 10-year yield has been largely range-bound since October. We expect it to break above 2% in 2020 as global economic conditions improve.
Corporate spreads push lower. Corporate bond spreads have pushed lower in December as investors have shown their confidence in U.S. corporate fundamentals. Investment-grade corporate bond spreads have declined to a 21-month low, while high-yield corporate bond spreads have dropped to a 14-month low. While we’re impressed by the lack of stress in credit markets, we urge suitable investors to exercise caution in the corporate bond sector. Slowing but near-trend economic growth could support corporate profits and companies’ ability to service their debt, but moderate inflationary pressures could offset these benefits in 2020.
Here comes Santa. December is widely known as a strong month for stocks, and that seasonal trend has played out so far this month. The S&P 500 has drifted higher in the first half of December, climbing 1.6% through Monday’s close. The year-end rally may just be starting, though, as we’ll explain today on the LPL Research blog.
Uncertainty has cleared. Three of the biggest uncertainties of 2019 have finally found resolution. Listen to the new Market Signals podcast, Uncertainty Has Finally Cleared, as LPL Research Sr. Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss what this could mean for equity markets in 2020.
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