Market Recap - U.S. - China Trade Talks Advance While Government Avoids Another Shutdown

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The S&P 500 gained 2.5% this week, as the market was enthused by progressing U.S‐China trade talks, Congress averting another government shutdown, and the Federal Reserve maintaining its dovish‐minded stance.

The Dow Jones Industrial Average gained 3.1%, the Nasdaq Composite gained 2.4%%, and the Russell 2000 gained 4.2%.

10 of the 11 S&P 500 sectors finished higher this week with energy (+4.8%), industrials (+3.5%), and materials (+3.4%) leading the advance. Conversely, the utilities sector (‐0.3%) was the lone group to finish with a loss this week.

The U.S. and China concluded a week‐long round of trade negotiations this week, although structural issues ‐‐ forced technology transfers, enforcement oversight, and China subsidizing domestic industries ‐‐ were unresolved. Mid‐level talks will continue next week in Washington while President Trump considers a possible 60‐day extension to the March 1 deadline.

Also, on Capitol Hill, President Trump signed a bipartisan funding resolution to avoid another government shutdown, although the $1.375 billion allotted for border security fell short of the $5.7 billion that was requested. As a result, President Trump declared a national emergency, setting up a likely legal battle, in order to secure funding from other departments to build a border wall.

The Fed, meanwhile, continued to assure investors that they need not fear tighter monetary policy at this juncture. Fed Governor Brainard (FOMC voter) said she thinks the balance sheet normalization effort should come to an end later this year.

These developments served to increase investor confidence in the face of slumping retail sales data and downside corporate guidance. Strikingly, the week's gains lifted the S&P 500 above its 200‐day moving average, which traders consider an important technical level, for the first time since December 4.

Retail sales for December declined 1.2% ( consensus +0.2%) ‐‐ the market's biggest monthly decline in nearly 10 years. There was a belief, however, that the December retail sales numbers were aberrant and would give way to better retail sales data for January.

Separately, Coca‐Cola (KO), PepsiCo (PEP), NVIDIA (NVDA), Applied Materials (AMAT), Activision Blizzard (ATVI), and Mattel (MAT) were some of the companies this week that issued downside guidance. Cisco Systems (CSCO), however, provided investors with positive results.

U.S. Treasuries retreated this week, driving yields higher in a curve‐flattening trade. The 2‐yr yield increased eight basis points to 2.52%, and the 10‐yr yield increased four basis points to 2.67%. The U.S. Dollar Index gained 0.3% to 96.90. WTI crude rose 5.4% to $55.56/bbl.