December is here once again and the question many investors will be asking is will we see seasonal gains this month, or a ‘Santa Rally’ as it is often referred to. Recent analysis by Fidelity International has shown that the FTSE100 index has generated a positive return for the month of December in 25 of the last 30 years.

Last year was one of the rare occasions that the performance was negative, due to uncertainty caused by US-China trade and Brexit. One could argue the market faces both of these very concerns again this year, although the outlook could be very different. The trade-war mood is a lot more optimistic with many seeing some sort of accord as more than feasible. In addition to this, a decisive result in the UK general election next week could put to bed a lot of the questions surrounding Brexit. It will be interesting to see how it plays out.

Link: Your Money

Spotlight on consumer spending as Black Friday kicks off holiday season

The major US indices returned to positive form last week, with the Nasdaq Composite climbing close to 2%, plus gains of around 1% for the S&P 500 and Dow Jones Industrial Average. Amazon’s (AMZN) share price climbed more than 3% over the course of the week. Investment firm T. Rowe Price put down to favorable online shopping trends as the holiday season kicked off with Black Friday (for more Black Friday reading, try this from Reuters). Edward Jones, another investment firm, painted a rosy picture for consumer spending over the next year. It highlighted that since 1950 there have been 16 years when the unemployment rate was below 4.5% at Thanksgiving, followed by an average 3.1% consumer spending increase and 9.9% S&P 500 return in the following year – with zero instances of consumer spending contracting. Economic data reported last week was less optimistic, with US consumer confidence falling for the fourth consecutive month. In the ongoing US-China trade saga, it was another week of conflicting information. At the start of the week China announced it would crack down on intellectual property theft, one of the sticking points in the trade talks. This was followed by US lawmakers signing legislation on Wednesday supporting the Hong Kong protestors, potentially throwing a spanner into the negotiations.

S&P 500: -0.4% Friday, +25.3% YTD

Dow Jones Industrial Average: -0.4% Friday, +20.25% YTD

Nasdaq Composite: -0.46% Friday, +30.6% YTD

UK stocks cling to weekly gains after Friday fall

The FTSE 100 index held on to a positive gain for the week after sinking by 0.94% on Friday, following weakness in Asian markets, including a 2% Friday fall for Hong Kong’s Hang Seng index. Royal Bank of Scotland, Lloyds and Tesco’s share prices fell by 2.4%, 2.5% and 3.4% respectively on the day. Wealth manager St James’s Place, which has had a rocky year after its sales tactics and incentives came under scrutiny, fell by 2.7% on Friday on the news that it had been downgraded to a sell rating by analysts at Goldman Sachs. At the other end of the FTSE 100, only three firms gained more than 0.5%.

FTSE 100: -0.94% Friday, +9.19% YTD

FTSE 250: -1% Friday, +18.92% YTD

What to watch

Following the Thanksgiving holiday in the US on Thursday and the end of the Q3 earnings rush, there are few companies reporting quarterly earnings on Monday.

Coupa Software (CUOP): Coupa Software, which provides a cloud platform for companies to keep track of spending, will report earnings after US markets close on Monday. For the first half of 2019, the firm posted $176m in revenues and a $40.4m loss, versus $118m in revenues and a $29.3m loss in the same period last year. Despite the losses, Coupa’s share price is up more than 140% year-to-date. Customer base expansion, an international rollout, and operating expenses are things to watch in the Q3 numbers (from H1 2018 to H1 2019, R&D costs expanded faster than revenue growth). The average analyst 12-month price target on the stock is $157.85, versus its current $153.49.

Link: Zacks Equity Research

US manufacturers: On Monday, the Institute for Supply Management’s November manufacturing report will be released, with investors watching closely for any further deterioration in the ISM manufacturing index after three straight months of contraction. The survey of manufacturers covers sectors ranging from chemical producers to electronics firms. Economists and analysts are not expecting any marked pickup in the November numbers. Capital Economics, as cited by Yahoo Finance, said: “We expect the ISM manufacturing index to rebound to 50 in November, from 48.3. That would be a sign that manufacturing output is not falling off a cliff. But we don’t expect it to mark the beginning of a game-changing recovery, either.” Last month, respondents from a host of sectors all told the ISM they were seeing weakness in demand for their products. Companies such as General Electric (GE) and Ford (F) are among the largest manufacturers in the US.

OPEC meeting in the spotlight

Oil prices were in flux at the end of last week, as investors await the next meeting of the OPEC cartel, which takes place in Vienna on Thursday. The goal of the meeting will be to decide on how oil production will be managed next year, as the existing deal to limit the supply expires in March. Saudi Arabia is likely to push hard for an extension of production cuts, and enhanced compliance measures, to support the IPO price of state-owned oil firm Saudi Aramco. Along with Kuwait and Angola, Saudi Arabia has cut more production than it should have under the deal, according to the Financial Times, while Iraq and Russia have lagged. Russian oil companies have proposed maintaining their quotas until the end of March. It remains to be seen whether Russia will move to take gas condensate production out of its overall figures, which has been one factor contributing to its difficulty in meeting the cut targets. Other OPEC producers do not include condensate in their own data. Any substantial policy shifts stemming from the meeting will inevitably lead to oil price moves, affecting stocks ranging from energy providers to airlines.

Link: Reuters 

What does a flurry of M&A tell us about the market?

There has been a flurry of M&A activity in the US this year, including Bristol-Myers Squibb buying Celgene in a $74bn cash and stock deal, a $120bn defense mega merger between United Technologies and Raytheon, and Charles Schwab’s recent announcement that it is buying rival discount broker TD Ameritrade for $26bn. Underneath the headlines, the number of huge deals this year is raising concerns among some analysts. Winston Chua, of TrimTabs Investment Research, told the Financial Times recently that an increased frequency of M&A activity tends to occur around market tops, as companies look to buy growth as organic growth opportunities become scarcer. That view is backed up by history, but there are optimists who are arguing that heightened M&A is a sign of confidence that could fuel a continuing market rally. There is another layer to explore here beyond what this signals for the stock market’s immediate future. Record levels of consolidation through deal making, combined with the fact that fewer startups are being launched, arguably means that the broader competitive environment is weakening, with knock on effects for growth. Harvard Business Review has an extensive breakdown of the argument here.

Crypto corner:

The three major cryptocurrencies remain relatively unchanged in the past 24 hours. At the time of writing, Bitcoin was down 1.24% at $7,234, Ethereum up 0.13% at $147.88 and XRP down 0.57% at $0.22.

In other news, banks in Germany will be allowed to sell and store cryptocurrencies in new legislation being introduced next year, according to Coindesk. The bill was approved by the Bundesrat, the German parliament, meaning that from 2020 German banks should be able to provide sale and custody services for cryptocurrencies.