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US Month in Markets - December 2019

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Market Summary

Index Returns - December 2019

Economic Surprise

The index measures economic data relative to expectations. A positive number indicates that economic data has outperformed expectations.

Key News and Events

  • Equity markets continued their recent rally, boosted by the announcement of a “phase one” U.S.-China trade deal which has tentatively ended months of short-term uncertainty. Progress on the U.S.-Mexico-Canada agreement (USMCA) and robust economic data releases provided further momentum for the rally. The three major U.S. equity indices (S&P 500, Dow Jones Industrial Average and Nasdaq Composite) all reached record highs over the month, as U.S. equities recorded their best annual performance since 2013.
  • The U.S. and China reached a “phase one” trade deal over the month. The deal suspended U.S. tariffs on $156bn worth of Chinese goods which was scheduled to take effect mid-December 2019. In addition, U.S. tariffs on $120bn worth of Chinese imports were halved to 7.5%. In return, China pledged to increase purchases of U.S. agricultural products and enhance intellectual property protection. President Trump announced his plan to sign the “phase one” deal in Washington on January 15 2020, with a view to begin negotiation of the “phase two” agreement later in the year.
  • In other trade news, the U.S., Canada, and Mexico finalized the U.S.-Mexico-Canada agreement (USMCA) in Mexico City after Congress and the White House reached a compromise on labor rights, environmental standards and other issues, removing obstacles to U.S. ratification of the treaty. The U.S. House of Representatives subsequently voted to ratify the USMCA by a wide bipartisan majority. Meanwhile, President Trump reinstated U.S. tariffs on steel and aluminum imports from Brazil and Argentina, citing a “massive devaluation of currencies" by both countries as the rationale for the new tariffs. Elsewhere, the Trump administration also proposed a 100% tariff on up to $2.4bn of French goods, in retaliation for France’s new digital services tax which Washington believes has unfairly targeted U.S. tech companies.
  • The U.S. House of Representatives voted to impeach President Trump, making him the third President in U.S. history to be impeached. The impeachment process was triggered by allegations that President Trump has improperly pressured his Ukrainian counterpart to launch an investigation into Joe Biden, a front-runner in the race for the Democratic presidential nomination in the 2020 elections. Republicans in the House of Representatives unanimously voted against impeachment. To be removed from office two-thirds of the Senate would have to vote to remove President Trump, making it an unlikely outcome given current positions.
  • UK Prime Minister Boris Johnson’s Conservative Party won a sizeable majority in the British general election. The results make it highly likely that Parliament will complete ratification of the Withdrawal Agreement and exit the EU by 31 January 2020. The UK will then have until the end of 2020 to negotiate a new trade agreement with the EU if an extension is not agreed.

Market Highlights


  • Global equity markets rose over the month, boosted by a “phase one” U.S.-China trade deal and robust economic data releases. Progress on the U.S.-Mexico-Canada agreement (USMCA) and robust economic data releases provided further momentum for the rally.
  • The S&P 500 index rose by 3.0% over the month, in line with the MSCI World index, which also rose by 3.0%. The S&P 500 index outperformed the MSCI World index over the year (31.5% vs 28.4%).
  • U.S. Large Cap stocks outperformed Small Cap stocks over the month, as the S&P 500 index rose by 3.0% while the Russell 2000 index rose by 2.9%. The Russell 2000 index ended the year with a return of 25.5%, underperforming the S&P 500 by 6.0%.
  • Growth stocks outperformed Value stocks over the month as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 3.1% while Value Stocks rose by 2.8% over the month. Growth Stocks performed well as equity markets continue to rally, outperforming Value Stocks by 12.0%.


  • Yields continued their upwards momentum over the month, as easing fears over global trade and positive economic data releases reduced expectations of near-term rate cuts.
  • The 10-year U.S. treasury yield rose by 14bps to 1.92% and 30-year U.S. treasury yield rose by 19bps to 2.39% over the week. Meanwhile, the 20-year TIPS yield rose by 4bps to 0.39% and 20-year breakeven inflation rose by 14bps to 1.86% over the week.
  • Credit also performed well, benefiting from a general "risk on" environment. The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 10bps to 101bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 15bps to 139bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields fell by 41bps to 360bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 35bps to 297bps over the week.


  • Commodities rose sharply in December, benefiting from a rally in oil prices after the Organization of the Petroleum Exporting Countries (OPEC), along with Russia, agreed further cuts to oil production. The S&P GSCI index rose by 7.0% in USD terms over the month.
  • The S&P GSCI Energy index rose by 9.4% as the price of WTI crude oil rose by 10.7% to US$61/BBL.
  • Industrial Metal prices rose by 2.9% as copper prices rose by 5.2% to US$6,156/MT.
  • Agricultural prices rose by 4.4% and gold prices rose by 3.7% to US$1,515/Oz.


  • The U.S. dollar depreciated against major currencies over the month.
  • Sterling appreciated by 2.4% against the U.S. dollar over the month, ending the month at $1.32/£.
  • The euro appreciated by 1.8% against the U.S. dollar over the month, ending the month at $1.12/€.
  • The Japanese yen appreciated by 0.8% against the U.S. dollar over the month, ending the month at ¥108.68/$, whilst the Canadian dollar appreciated by 2.4% against the U.S. dollar over the month ending the month at C$1.30/$.

Highlighted Economic Release

China Manufacturing PMI (December 31)
China's official manufacturing PMI was unchanged at 50.2 in December, pointing to a second consecutive month of manufacturing expansion. Meanwhile, the Non-Manufacturing PMI fell from an eight-month high of 54.4 recorded in November, falling by 0.9 points to 53.5.

Markit Eurozone Manufacturing PMI (December 16)
Manufacturing activity in the Eurozone shrunk for the eleventh successive month. The pace of contraction intensified over November with the manufacturing Purchasing Managers’ Index moving further into negative territory, dragged lower by a sustained deterioration in the German manufacturing sector.

Markit U.S. Manufacturing PMI (December 16)
Similar to other developed economies, the manufacturing Purchasing Managers’ Index fell in the U.S. with a reading of 52.5. Activity in the manufacturing sector was expected to be similar to prior readings but was narrowly below forecasts.

Federal Open Market Committee (FOMC) Rate Decision (December 11)
The Federal Reserve kept interest rates on hold at 1.50% to 1.75% at their meeting last week. In the latest "dot plot", the majority of the FOMC believed that interest rates will stay at current levels for at least the next year, with the next 25bps hike not anticipated until 2021.

University of Michigan U.S. Consumer Sentiment (December 6)
Consumer sentiment rose by 2.4 points to a seven-month high of 99.2 in November, beating consensus forecasts of a 0.2-point rise. The gains were largely attributed to upper income households, who reported gains in household wealth due to strong equity market performances.

U.S. Nonfarm Payrolls (December 6)
266 thousand jobs were added to the U.S. economy in November, the strongest employment growth in ten months. Analysts have been expecting a job growth of 180,000. Notable job gains occurred in the health care, professional services and manufacturing sectors.

Bank of Canada Rate Decision (December 4)
The Bank of Canada (BoC) kept interest rates on hold at 1.75% at its December meeting, whilst BoC governor Stephen Poloz announced his decision to step down when his seven-year term expires in June next year. Expectations of future rate cuts were tampered as the BoC retains a positive economic outlook, driving bond yields upwards.

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Appendix: Index Definitions

  • S&P 500 Index – The market-cap-weighted index includes 500 leading companies and captures approximately 80% of available market capitalization.
  • Russell 2000 Index - The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
  • MSCI World Index - A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, representing 24 developed market country indices.
  • MSCI USA Value/Growth - The MSCI USA Value/Growth Index captures U.S. large and mid cap securities exhibiting overall value/growth style characteristics. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend.
  • Bank of America Merrill Lynch U.S. Corporate Index - An unmanaged index considered representative of fixed-income obligations issued by U.S. corporates.
  • Bank of America Merrill Lynch U.S. High Yield Index - An unmanaged index considered representative of sub-investment grade fixed-income obligations issued by U.S. corporates.
  • Bloomberg Barclays U.S. Government Index - An unmanaged index considered representative of fixed-income obligations issued by the U.S. government.
  • Bloomberg Barclays Long Credit Index - An unmanaged index considered representative of long duration fixed-income obligations issued by U.S. corporates.
  • S&P GSCI – A world-production weighted index that is based on the average quantity of production of each commodity in the index.
  • JPMorgan EMBI Global Diversified – An unmanaged index considered representative of USD denominated fixed-income obligations issued by the emerging market government.

Appendix: Data Disclaimers

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, "Barclays"), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group [year]. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE®” “Russell®”, “FTSE Russell® are a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices.  None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information.  MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information.  Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (

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