U.S. consumers remain strong, as evidenced by better-than-expected retail sales in November. Industrial production was also healthier than anticipated for the month, although both manufacturing and services PMIs were weaker than expected. On the jobs front, a mixed bag: While the JOLTS job openings survey was below expectations, initial jobless claims came in lower than predicted—a positive sign, especially after the previous week’s lackluster results.
In Europe, overall production was better than expected and the German ZEW index of economic sentiment exceeded estimates (but remained in negative territory). However, German manufacturing and services PMIs were weaker than forecast. Meanwhile, UK wages rose more than expected and employment growth surprised to the upside. That said, UK industrial and manufacturing production disappointed.
In Japan, machinery orders grew at a slower-than-expected rate, but industrial production and the Tankan large manufacturing index beat estimates. Producer prices also rose at a slower pace than predicted. Meanwhile, Chinese loan growth topped forecasts and fixed-asset investment met expectations—but industrial production disappointed.
The U.S. equity market slumped last week, largely due to concerns about the strength of the global economy. Sectors that outperformed included utilities and communication services. Utilities benefited from investors’ continued preference for more defensive areas of the market, while various internet-oriented stocks helped support the communication services sector. In contrast, financial services and energy underperformed for the week. Financials continued to suffer due to lackluster loan growth and macroeconomic concerns (the sector’s outperformance following the 2016 election has now faded). Energy stocks were hurt by falling oil prices and tepid Chinese economic indicators.
European markets also suffered due to global growth concerns, but fared better than the U.S. thanks to strong M&A prospects (especially in the banking sector) and because trade tensions faded slightly. Japanese markets, like the U.S., saw relative outperformance from defensive sectors and weakness from energy and financials. Emerging markets, while mixed, performed slightly better than the U.S. market as China made efforts to reduce tensions with the Trump administration over trade and tariff issues.
In the fixed-income markets, long-duration bonds generally outperformed shorter-duration securities. High-yield bonds and both emerging markets sovereign and corporate credits ended the week in positive territory as fixed-income investors became more risk-on and took advantage of lower valuations.
GAIN: Active Asset Allocation
Global equities started the week flat but ultimately finished lower—a result of both structural weakness and a lack of buyers. That said, emerging markets stocks held up relatively well as the U.S. and China continue to work toward a deal regarding trade and tariffs.