Last week saw mostly positive economic news in the U.S. Initial jobless claims once again were lower than expected, indicating that the domestic employment picture remains robust. Additionally, the Philadelphia Fed Manufacturing Index rose month-over-month and topped forecasts. That said, the Michigan consumer sentiment and expectations gauges were weaker than anticipated.
In Europe, industrial production fell more than expected but the trade balance surprised to the upside. Data out of the UK showed retail and core retail sales were below expectations, but core CPI and core PPI readings were slightly higher than predicted. In Asia, new loan levels and outstanding loan growth in China was better than expected. The Chinese government also pledged to take steps to stimulate the economy. Japanese national core CPI and PPI were slightly lower than expected.
The U.S. equity market saw another week of solid gains, with cyclical sectors like financials and industrials leading the way. Financials benefited from better-than-expected fourth quarter earnings results from banks. Industrials got a boost from signs of possible progress between the U.S. and China on trade policies. Defensive sectors like utilities and consumer staples lagged as investors were willing to take on more risk.
European equity markets also rallied, as investors viewed the UK parliament’s rejection of Prime Minister May’s Brexit plan as a positive. Trade and economic news out of China also bolstered European markets. As in the U.S., European cyclical sectors—including autos and financials—led the pack. Defensive market sectors, like telecom and health care, lagged behind. In Asia, Japan benefited from China’s announcement of new economic stimulus efforts—although data showed that trade tensions continue to weigh on Japan.
Emerging markets stocks continued their recent run. In particular, Turkey last week began catching up with other emerging markets’ performance after the country’s equities were viewed more favorably due to increased signs of stability in the nation.
In the fixed-income market, shorter-duration securities outperformed longer-duration debt. High-yield bonds continued to benefit from a more risk-seeking market environment and as crude oil prices rose. Both sovereign and corporate emerging markets debt appreciated again last week, as investors allocated more capital to risk assets and after select emerging markets currencies rallied.
GAIN: Active Asset Allocation
Global equity markets saw another solid week, with a fairly broad-based rally that was led by the U.S. stock market. Earnings have been mixed, but investors remain encouraged.