Phase I Signed, Sealed, and Delivered
January 17, 2020
After months of intense negotiations, the U.S. and China signed off on Phase I of their trade agreement this week. As part of the deal, the U.S. will suspend planned tariff increases on Chinese imports and cut the rate of some existing tariffs. In exchange, China has committed to ramping up purchases of U.S. goods and services by $200 billion over the next two years. In other market news, the Q4 2019 earnings season kicked off with strong earnings from the banking sector while retail sales posted healthy gains during the final month of the holiday buying season. Strong tailwinds from the Phase 1 trade agreement, corporate earnings results, and consumer spending helped the S&P 500 top 3300 for the first time ever. For the week, the S&P 500 added 2.11% to hit an all-time high of 3329.62.
Big Banks Set Positive Tone for Earnings Season
Banks kicked off the Q4 2019 earnings season. Powered by stock market gains, big banks’ wealth management and trading divisions posted notable year-over-year growth. Consumer credit, particularly in credit cards, also proved strong during the quarter, signaling consumers remain confident in their economic prospects to continue to increase their lines of credit. Financial companies also got a boost from this week’s Phase 1 U.S.-China trade agreement as the deal clears some of the obstacles that have prevented U.S. banks, credit card networks, and insurance companies from doing business in China. As part of the agreement, China has agreed to act on applications submitted to operate in the country. Considering China’s market size, even a small share of the market stands to translate into healthy gains for U.S. financial companies.
Holiday Shoppers Lift Retail Sales
U.S. retail sales rose 0.30% in December to $529.6 billion. Meanwhile, November retail sales got a boost as they were upwardly revised from a 0.20% gain to a 0.30% gain. Excluding autos, gasoline, building materials and food services, retail sales rose 0.50%. Results were driven by a 1.60% increase in clothing stores, a 1.40% increase in receipts at building material stores, a 0.90% increase at hobby and book stores, and a 0.60% increase in electronics and appliance stores. Overall, the holiday shopping season proved to be a healthy one as retail sales rose throughout the fourth quarter. The continued gains suggest the economy maintained a moderate growth pace through the last quarter of 2019.
Markets continued their record-setting streak as the U.S. and China signed off on Phase I of their trade agreement. Although the agreement brings some relief to the agriculture sector as China has pledged to ramp up purchases of agriculture products, as well as the financial sector as it has agreed to act quickly to process applications from banks and payment companies to access the market, thornier issues have yet to be addressed. Hot topics of debate surrounding Chinese subsidies to domestic companies and U.S. intellectual property rights have yet to be tackled. Those issues have been pushed off to the next round of negotiations, with a date for further negotiations yet to be announced. For the time being, it seems markets are content with a Phase I deal and appear confident the White House will strike the right balance in trade talks to ensure the economy continues firing on all cylinders.
The Week Ahead
Everything Yold is New Again
The year 2020 marks the beginning of the decade of the yold, or the “young old” as the Japanese call people aged 65 to 75. The term “young old” is a sign of respect in the Japanese culture which is known for revering its elderly citizens. According to The Economist, yolds around the world are challenging perceptions of those age 65 and older as retirees with nothing but time on their hands. The yolds of today are working longer, living longer, are healthier, more productive, score higher on cognitive tests, and are wealthier than previous generations of seniors.
The population aged 65 and older is projected to outnumber children for the first time in U.S. history by the end of this decade. The demographic turning point is driven by the baby boom generation — those born between 1946 and 1964 — with the peak of the boom being 1955 and 1960. Given that the traditional retirement age has historically been age 65, those boomers are hitting retirement age in the next five years. However, today’s 65-year-olds are twice as likely to be working compared with 1985. In early 1985, the percentage of people age 65 or older who were working or seeking paid work was just 10%. Today, more than 20% of Americans 65 or older are in the workforce. The Bureau of Labor Statistics (BLS) expects the trend of older people working to continue, estimating that 13 million Americans age 65 and older will be in the labor force by 2024, making it the fastest-growing segment.
The new yolds are working longer for a variety of reasons. Some delay retirement for financial reasons and some enjoy the personal fulfillment they get by continuing to work. In many cases, longer life expectancies and better health drive the decision. In 1950, men and women aged 65 could expect to live another 11 years or more on average. About one out of every three 65-year-olds today will live past age 90, and about one out of seven will live past age 95. A man turning age 65 today can expect to live, on average, until age 84. A woman turning age 65 today can expect to live, on average, until age 86.5. Research shows that working is one of the factors helping people stay healthy longer and slow the cognitive decline associated with aging.
The wealth of the yold is rising much more than any other group. According to the Federal Reserve and the BLS, from 1989 to 2016, the median inflation-adjusted net worth of families with a head of household age 62 or older increased 52%. The median wealth of younger families declined by 17% for families headed by someone age 40 to 61, and declined by 19% for a family headed by someone under 40.
Cheers to the rise of the yold — a population that is healthy, wealthy, and wise. It’s no wonder The Economist dubbed 2020 as “the beginning of the decade of the yold” and predicts that this generation will again “change the world as they have done several times at different stages of their lives.”