The Market Wrap For December 20: Finally, Some Sort Of A Deal

And just like that, we finally have a deal. Or at least the beginnings of one. At the end of last Friday’s trading session, the U.S. and China announced that they are moving forward with the so-called Phase One deal on trade. As we’ve seen over the last year, the trade war has added billions in tariffs, lessened economic growth and started to stifle the world’s economy. With the deal in place, traders spent much of the week riding high as one of the major concerns about the global economy was finally over. However, much of the gains were muted as several officials mentioned that the deal was only the first step on a long road ahead.

Also keeping gains in check were additional concerns overseas. Britain’s Brexit plans continued to hit another roadblock, while growth concerns in the European Union helped keep traders from getting too excited over the deal.

Benefiting stock market bulls this week was positive data. While the number of economic metrics released this week was low, several key data points – in housing, manufacturing and consumer spending – all clocked in at better-than-expected rates.

Finally, while earnings were light as well, several mixed corporate actions managed to keep stocks moving both higher and lower on the week.

All in all, the strength of the Phase One deal and a potential end to the trade war kept investors in good spirits over the week and managed to push stocks predominantly higher throughout the trading sessions.

Be sure to check out our previous Wrap here, when the Federal Reserve gave investors what they wanted.

After last Friday’s big win on the trade front, stocks rallied on Monday. Traders were relieved that the agreement would roll back some tariffs already in place and prevent new ones from being added for the time being. In return, China would look into intellectual property rights concerns and increase its purchases of U.S. agricultural products. According to Treasury Secretary Steven Mnuchin, the deal would be officially written after the holidays and signed in January. Trade Representative Robert Lighthizer mentioned that the deal was “totally done.” With news of a finished trade deal, stocks were primed for big gains on Monday.

Helping those gains was decent data from both the U.S. and China.
According to official Chinese numbers, the nation’s industrial output surged on a year-over-year basis. Chinese industrial production jumped 6.2% in November. This was higher than many initial estimates. At the same time, China’s consumer economy continues to hum along. Retail sales in Asia’s dragon economy jumped a massive 8% last month.

For the U.S., producers have turned bullish on the economy. IHS Markit’s Flash PMI report showed that purchasing managers are optimistic and now output sits at a five-month high. Housing in the U.S. also helped paint a bullish picture on the day. Thanks to declines in interest rates and mortgages, the National Association of Home Builders/Wells Fargo Housing Market Index spiked in December. This was the highest level in 20 years.

However, it wasn’t all bullish news on the street. Shares of Dow component Boeing (BA) took a serious hit when the Wall Street Journal reported that the firm was looking to cut back or cancel production of its troubled 737 Max plane, as a solution to its problems have not yet taken shape. Additionally, both DuPont (DD ) and International Flavors & Fragrances (IFF ) sank on the announcement that the two would merge divisions.

Despite the poor news, traders were happy with the progress made on trade issues. And with that, stocks finished stronger on the day. The Dow Jones Industrial Average gained 100.51 points, to close at 28,235.89. The S&P 500 increased by 22.65 points, while the tech-heavy NASDAQ Composite rose 79.35 points.

Stocks continued their climb on Tuesday. While there is still a lot of work to be done on the trade front, the Phase One deal eliminates some of the market’s risks. Investors received more confirmation of the deal via an interview with U.S. Trade Representative Robert Lighthizer. Speaking to Fox Business, Lighthizer reported that while the official agreement hasn’t officially been signed, it was “totally enforceable.” Moreover, Lighthizer mentioned that some issues, such as forced technology transfers, will not be addressed until a Phase Two deal is implemented.

With trade again providing support, positive data helped stocks rise throughout the trading day. Building Permits and Housing Starts recorded better-than-expected readings for the month. Driven by low interest rates on mortgages and easier-to-obtain loans, home buying has become simplified for many people. Meanwhile, industrial production jumped last month, while the JOLTS job openings report once again clocked in at record highs.

The data was met with positive individual stock performance. Streaming video provider Netflix (NFLX) jumped nearly 4% on the back of bullish subscriber news. NFLX reported that it had added a significant number of new customers across Europe, Asia, the Middle East and African markets. Retailers were also in the black on the positive consumer news and overall strong economic data. Target (TGT ) and Macy’s (M ) were notable winners. Finally, shares of many individual semiconductor stocks also surged on the strengthening trade news.

With low volume and trade still winning with investors, the broader markets rose on the day and hit new record highs. The Dow Jones Industrial Average gained 31.27 points, to close at 28,267.16. The S&P 500 added just 1.07 points and the NASDAQ increased by 9.13 points.

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After the previous day’s gains, Wednesday saw stocks taking some losses – albeit, slight ones. Thanks to the approaching holiday season, many traders have started to take their vacations, and with that, volumes were light on the day.

Traders seemed to ignore what was going on in Washington. During the day, Congress debated the expected impeachment of President Trump. While the vote came well into the evening, the markets ignored much of the noise from the event.

As for individual corporate actions, the day was mixed. Consumer products firm General Mills (GIS ) popped by 3% as it reported strong revenues and beat expectations thanks to its pet food divisions. Also seeing a big jump was insurance group Cigna (CI ), which agreed to sell its disability insurance business for $6.3 billion to New York Life. However, as we said, the day was mixed, with FedEx (FDX) being a major loser. The logistics giant reported poor earnings that did not meet expectations. Moreover, FDX reported lower guidance for the rest of the year on the loss of a “large customer.”

With the overall mixed day and low volumes, stocks drifted and ultimately ended lower at the close. The Dow Jones Industrial Average closed down by 28 points, to land at 28,239.28. The S&P 500 also closed lower by 1.38 points. However, NASDAQ managed to finish in the green and hit a fresh record high.

Thursday saw another day of light volume as investors continued to ignore the impeachment proceedings. Late Wednesday evening, the House of Representatives voted to impeach Trump for abuse of power and obstruction of Congress. However, given the uphill battle in the Republican-controlled Senate and the refusal of House leaders from sending over the impeachment in the first place, traders estimate the chance of Trump being removed from office at nearly zero. With that, they were able to focus on other issues. And, today, most of them were positive.

Food-producer Conagra (CAG ) jumped 18%, as it reported better sales across its brands. Chipmaker Micron (MU ) increased by 3.4%, as it posted both better-than-expected earnings and sales.

Stocks also received a boost as Sweden elected to end negative interest rates on its bonds and lower-than-expected weekly jobless claims were reported in the U.S.

With the low volume and generally good news, stocks finished higher on the day. The Dow Jones managed to gain 122.01 to close at 28,376.69. The S&P 500 and NASDAQ gained 14.18 and 59.48, respectively.

After Thursday’s return rally, Friday should see more of the same. Heading into the home stretch for the holidays and traders’ vacations, the day should see minimal volume. This is especially true considering the recent Phase One deal announcements, better-than-average data and an accommodative Federal Reserve. One potential hiccup on the day could be the official quarter-over-quarter GDP release. While analysts are expecting a slight 2.1% gain, a lower number could set off some selling before the holiday weekend. So investors will still need to be a bit diligent on Friday. However, given the positives of the week so far, the day should shape up to be another decent one for the markets.

Right now, investors are liking the odds of a strong GDP report.

According to CNN Premarket, the major indices are higher. At the time of writing, the Dow Jones is up by 80 points. The S&P 500 and NASDAQ are in the green as well.

Thanks to the start of Hanukkah and Christmas, next week promises to be
another light one for traders. With limited hours and market closures for the holidays, not much is expected in terms of returns. The only data point worth mentioning comes Monday – and that’s the month-over-month durable goods orders. Last month that number surprised to the downside. As for earnings reports, they are expected to be light and mostly focus on small-cap biotech stocks and other similar fare.

Investors should use the time to relax and plan for the year ahead.

Be sure to check out Dividend.com’s News section for next week’s Market Wrap and other great dividend investing news.