September 15, 2019

Improving economic data (especially U.S. August retail sales that surprised on the upside), supportive global central-bank policies (i.e. the ECB cut its deposit rate by 10 bps, and relaunched its bond buying program), and conciliatory trade moves by both the White House and Chinese officials boosted investor sentiment. Global stock markets recorded a third consecutive week of solid gains; the S&P 500 advanced 0.9%, the small-cap Russell 200 outperformed by a large margin rising 5%, Japan rose 3.7%, the European bourses gained 1% to 1.5%, and the BSD Global Tech Hedge Fund managed a 0.3% increase (despite an overweight short equity indice position). China announced that it would exempt some U.S. products from tariffs, and the U.S. responded with delaying the increase in some of the tariffs scheduled to take effect next month. These goodwill gestures from both sides sparked optimism that an interim trade agreement can be achieved. Notable market moves last week included a sizable rise in Treasury yields and the outperformance of cyclical sectors (financials, consumer discretionary, energy) over defensives (utilities, health care, staples). Another shift was the preference for stocks with depressed valuations over stocks that traditionally trade at higher price-to-earnings ratios, which have outperformed this year; this past week, value stock indices gained 2.4%, while growth indices dropped 0.5%.

Calendar for the week of September 16 – there are a few minor economic reports in the coming week (including U.S. industrial production, housing starts and existing home sales), but there a some major events which will be in focus, including China’s August economic  data (IP, retail sales, and FAI are all out Monday morning), August-end earnings (ADBE and FDX after the Tuesday close), and central banks (the FOMC on Wednesday is the big one but a slew of other monetary decisions are on the calendar, including BOJ, SNB, BOE, and others). The Federal Reserve is expected to slide interest rates down 25 points, although the outlier scenarios for no cut or a 50 point cut which are not completely dead. The Federal Reserve’s dot plot projections will be watched closely as always, as will Jerome Powell’s press conference on September 18. The presser arrives amid increased FOMC dissension and with the White House exerting some pressure. While Powell played it cool in Jackson Hole, it’s possible he could assert the Fed’s independence this time around. The PBOC also is expected to lower its MLF rate and LPR at some point in the week. Chinese trade staffers are due in Washington during the week of September 16 to commence talks ahead of the principal-level meeting scheduled for early-October. The week will be capped off with a quadruple witching trading day on September 20. More than 9B shares changed hands in the U.S. during the last quarterly options expiration event and created some amplified share price movements along the way.