In December, U.S. stocks rallied to end the year with the largest gain since 2013. A strong jobs report, a delay of tariffs, and a further rise in consumer sentiment created the perfect storm that pushed markets to record highs during the month.
The December 6th employment report by the U.S. Labor Department showed a surge in payrolls of 266,000, which put unemployment at a 50-year low of 3.5%. The persistently tight labor market will be a boon for workers in the medium-term and should continue to put upward pressure on wage growth.
Despite what seemed to be a hardened stance on China, on December 12th President Trump signed off on a phase-one trade deal to avert the tariffs on Chinese goods that were set to go into effect on December 15th. This removed a significant overhang on the market that has been ever-present throughout the year. The phase-one deal is expected to be signed in Washington on January 15th and negotiations on phase-two are expected to begin thereafter.
With a tight labor market and record asset prices, it is no surprise that consumer sentiment strengthened once again in December, rising to 99.3 from 98.8 the previous month. Further supporting this data, on December 26th Amazon announced its “holiday season was record-breaking.” With Amazon representing approximately 50% of e-commerce, we believe this is evidence that the consumer is currently stronger than ever.
Given the sizable upward move in U.S. equities this past year, we would not be surprised by a 10-15% correction in the first quarter of 2020. While U.S. markets did exceptionally well in 2019, international markets tended to lag the U.S. and may present attractive opportunities in the year ahead.