The three big storylines of 2019, Trade, Brexit, and the Fed, were all at play, but generally were met with a muted response, suggesting the script writers need some new material to engage traders in 2020.
The market drifted lower through Wednesday as investors were a bit spooked by the prospect of Friday the 13th coming without a consummated trade deal, which could have resulted in (disastrous) new tariffs being imposed over the weekend. Shortly after the open on Thursday, President Trump said on Twitter that a “big deal” with China is “getting very close,” as he was reportedly set to meet with his trade team to discuss planned tariffs. “They want it, and so do we!”. The S&P jumped 1% in the next 30 minutes and maintained those gains to finish the week up 0.73%. The details of the deal as disclosed on Friday were somewhat sketchy, but apparently phase-one is done, and negotiations on phase-two were scheduled to begin immediately. The 86-page text detailing the first phase involves reducing tariffs in exchange for more Chinese purchases of farm goods as well as commitments on intellectual property and currency markets. The “phase” strategy is brilliant, in that it creates the sense of momentum, perhaps when there really isn’t much movement.
Across the pond, The United Kingdom gave Boris Johnson’s Conservative Party a landslide victory. The market has largely ignored the Brexit saga, but closure on this issue reduces uncertainty. I’m not an expert on politics (and I don’t play one on TV), but many commentators suggested a read-through of the conservative landslide to other upcoming elections.
The Federal Reserve left interest rates unchanged at its final meeting of the year on Wednesday, and officials signaled an indefinite pause as America’s economy appears to remain on solid footing. Fed Chair Jerome H. Powell, indicated that he thought the Fed’s policy rate would remain appropriate until inflation rose persistently, and pointed out that “none of us have much of a sense of what the economy will look like in 2021.” As Powell has become increasingly transparent and predictable, investors have stopped combing through the tea leaves of his statements for nuances to develop trading strategies.
Curiously, in what would seem to have been a “risk-on” trade week, both the price of gold and Treasury bonds (traditionally “risk-off” assets) rose slightly. There are ample conflicting interpretations of the data and “news” to encourage both risk-taking and risk-reduction based on your predilections.
RIP 2019 Chicago Bears and Wall Street Bears. In my opinion the season went south with the bizarre kneel-down leading to the missed field goal against the Chargers on October 27th. As it relates to the stock market, bad coaching decisions are like bad management decisions, it’s hard to win with either.
It looks like we are going into the holiday season with good cheer, unless something unforeseen tosses a lump of coal in our stockings. Fed Presidents Kaplan, Williams, Rosengren, and Evans will all be back on the speaking circuit, but no shockers are likely as Fed policy for the moment seems to be clearly on hold. The week wraps up with key numbers on the U.S. consumer, including the University of Michigan sentiment index and data on personal spending. The consensus forecast calls for consumer sentiment to remain roughly unchanged at a healthy reading of 99. With the market at an all-time high and unemployment at a 50-year low, the stage is set for the consumer to keep on keeping on. Any downtick in the reading for present conditions could be a warning sign.
The House is set to vote on impeachment on Wednesday. The market hasn’t cared, probably because the strongly held belief that the Senate will acquit Trump in the trial now set for January.
Biggest Weekly Movers:
TV +11.6%: Grupo Televisa is the largest media company in the Spanish-speaking world. Besides operating broadcast channels in Mexico, the company produces pay-television channels whose content reaches subscribers in North America, Asia, Europe, and Latin America. Televisa also owns interests in satellite television, cable TV, terrestrial radio, magazine publishing, Mexican bingo parlors, and three of Mexico’s professional soccer teams. The Company reported that it has won a federal injunction against Walt Disney Co’s acquisition of Twenty-First Century Fox Inc’s assets in Mexico, a move that could at least temporarily stall the deal. TV is a 1.11% holding in the North Star Opportunity Fund.
LEE – 12.9%: Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news, information and a major platform for advertising in 50 markets. The Company reported fiscal Q4 earnings of $0.01 per share, down from $0.07 in the comparable period a year ago. For the quarter ended Sept. 29 total revenue of $123.7 million was down from $139.7 million in the same period a year ago. “We made great progress on our digital transformation in 2019, as we saw positive results in digital advertising, continued double-digit growth at TownNews and solid digital-only subscriber growth,” said Kevin Mowbray, President and Chief Executive Officer. “In the fourth quarter, total digital revenue, which includes digital advertising, digital subscription revenue and digital services revenue, totaled $36.2 million, or 29.3% of our total operating revenue. Digital advertising revenue comprised more than 40% of our total advertising revenue in the fourth quarter, and print advertising accounted for less than 30% of our total operating revenue. Also, based on third party research, we believe we capture more than twice the industry average in digital market share.” LEE is a 0.82% holding in the North Star Opportunity Fund and LEE corporate bonds are a 2.55% holding in the North Star Bond Fund.