Another record high. U.S. stocks are little changed this morning as investors assess the first round of earnings reports after the S&P 500 Index’s third record high of 2020. Trade optimism is also buoying risk sentiment, with the United States and China poised to sign a phase-one trade agreement Wednesday. While stocks could continue pushing higher, we encourage investors to be prepared for volatility with a lot of good news priced into current valuations and major indexes at record highs.
Yields climb. Long-term U.S. Treasury yields fell slightly last week as fixed income investors weighed easing geopolitical tensions against a weaker-than-expected December 2019 jobs report. The 10-year yield rose three basis points (0.03%) to end the week at 1.82%, then climbed to 1.84% on Monday. We think the signing of the U.S.-China trade deal and stabilizing global economic data could help boost yields going forward, but we don’t expect yields to climb much higher from these levels.
Solid CPI growth. The core Consumer Price Index (CPI), which excludes food and energy, rose 2.3% year over year in December, around the fastest pace of the economic cycle. Inflation concerns are back in the spotlight after the December 2019 jobs report showed wage growth for nonsupervisory workers slowed to a 15-month low. However, today’s CPI data shows companies still have ample pricing power, a good sign for future profits and economic durability. We’ll dig into December’s CPI data today on the LPL Research blog.
One step back. Corporate sentiment took one step back in December 2019 as respondents reported a drop in earnings during the month. The National Federation of Independent Business (NFIB) Small Business Optimism gauge fell to 102.7, below a four-month high reached in November 2019. There were encouraging details in the report, though. NFIB’s gauge of uncertainty fell to a 19-month low, and a measure of economic expectations improved.
Q4 in review. Stocks rose and the U.S. Treasury yield bounced back amid trade optimism and a pause by the Federal Reserve in the fourth quarter. Market Insight Quarterly takes a look at market performance in the last quarter of 2019 and the decade.
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