Mind the Gaps (e.g. Trump, Trade, and Jobs)

Over the past two weeks, the market has experienced several price gaps in trading action due almost entirely to swings in trade expectations. There has been little in the way of truly meaningfully incremental news, but that did not stop the market from reacting with meaningful moves. It is during these past two weeks, which have included impeachment hearings, that we decided one of our themes for Haverford’s 2020 Outlook is that the Noise will be Deafening, making the News Harder to Hear. Despite the trading gaps, the S&P 500 gained 0.16%, to close the week at 3,146.

Source: FactSet Research Systems

The Week of Gaps

Monday, 11/25: Stocks originally gapped higher as investors celebrated the more stringent intellectual property protection guidelines unveiled by China. This news could help pave the way for the completion of the “phase one” deal. There was also approximately $70 billion worth of mergers announced over the weekend.

Monday, 12/2: The market’s positive momentum lasted through Black Friday. The following Monday, President Trump announced via tweet a new tariff on Brazil and Argentina steel & aluminum. He went on to say that the Federal Reserve should “Lower Rates & Loosen!” In a second tweet, he touted the economic windfall from tariffs, “U.S. Markets are up as much as 21% since the announcement of Tariffs on 3/1/2018 – and the U.S. is taking in massive amounts of money (and giving some to our farmers, who have been targeted by China!)”

Tuesday, 12/3: The market took another hit after Trump made remarks at NATO that a trade deal may have to wait until after the November elections. “I have no deadline, no. In some ways I think I think it’s better to wait until after the election with China.” This is a comment he has made before, but sentiment towards a possible trade deal had been souring over the past several days and this was enough to send to the market lower.

Wednesday 12/4: The market than gapped open the following day, when Bloomberg news expressed optimism regarding the US-China trade talks. Bloomberg stated, “U.S. negotiators expect a phase-one deal with China to be completed before American tariffs are set to rise on Dec. 15.”

Friday 12/6, held the last bit of gap-inducing news, and perhaps the most consequential. The November jobs report was very strong and much better than expected. The economy added 266,000 jobs in November while October’s gains were revised upward to 156,000. The unemployment rate fell to 3.5% down from 3.6% in October.

The Week Ahead

The most important date this week is Sunday, 15th; the day a tranche of tariffs on Chinese goods is set to go into effect. Investors are highly confident these tariffs will be postponed and that the “phase one” trade deal will include a rollback in existing tariffs.

On Wednesday, the Consumer Price Index (CPI) will be reported. Expectations are for a 2% year-over-year rise. Core CPI, which excludes food and energy prices, is seen rising 2.3%. The Federal Open Market Committee will also announce its decision on interest rates. We expect the Fed to be on pause for the near future unless there is a dramatic economic slowing or rising inflation expectations.