By Christopher Versace via Iris.xyz

Stocks surged last week, with all four major domestic stock market indices finishing up in low single digits compared to the prior week. This move was inspired by a number of factors, including a dovish-sounding Fed Beige Book report as more Fed districts have become less optimistic about the economy. Aside from the hard economic data, as we shared last week, rail company Genesee & Wyoming (GWR) reported traffic volumes for December that fell 4.8% year over year, and we saw sharp declines in the January reading for the Empire State Manufacturing Survey General Business Conditions Index.

This and the other data in the last several weeks led John Williams, president of the New York Federal Reserve and a voting member on the Federal Open Market Committee, to say in a speech Friday that the Federal Reserve should be cautious about hiking interest rates further after a year that saw four quarter-point increases. This reiterated the “data dependent” and patient view Fed Chair Powell exuded recently and signals a rate hike in the next few months is likely off the table.

Another powerful factor that led the market to finish the week on a high note was potentially positive progress on the U.S.-China trade front. On Thursday, The Wall Street Journal reported that Treasury Secretary Steven Mnuchin had floated the idea of easing tariffs on Chinese goods as the two countries continue to negotiate on trade. CNBC reported China offered a six-year increase in U.S. imports during recent trade talks and the potential deal could reduce the annual U.S. deficit to zero by 2024. These would be welcome developments ahead of the next round of trade talk in Washington on Jan. 30-31. Given the economic data emanating from China that shows declining factory sentiment, deflation and falling exports that have prompted China to add new stimulative measures for its economy, we are hopeful for more concrete and positive progress as we enter February.

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