Data Source: Bloomberg
November 2019 Highlights:
stocks posted positive returns (MSCI All-Country World Index or ACWI up 2.4%),
primarily driven by the U.S. (S&P 500 +3.6%). Europe, Japan, and Emerging
Markets (up 1.5%, 0.6%, and
-0.1%, respectively) could not keep up with the U.S.
- Emerging markets have not benefited as much from the holiday rally as the fallout from the U.S. / China trade conflict spreads across Asia from worsening credit conditions cropping up across China’s banking system to falling retail sales resulting from Hong Kong protests.
- Within the U.S. markets, U.S. small caps underperformed large caps and value underperformed growth; much of this outperformance occurred towards the end of the month. S&P Small Cap returned 3.1% vs. 3.6% for the S&P 500 while S&P Pure Value returned 3.8% vs. 4.2% for Pure Growth.
- Technology, financial, and healthcare stocks led sector performers while defensive and interest-rate sensitive sectors such as staples, real estate and utilities lagged.
- Among factors, High Quality and Momentum outperformed Value, High Dividend, and Minimum Volatility. Once again, High Quality seems to be benefiting from an earnings/profitability scarcity as investors flock to companies deemed to have strong competitive positioning. Minimum Volatility continued its underperformance from September as this factor suffered alongside the sell-off in the bond market earlier in the month.
- Fixed income was marginally down in November as the 10-Year Treasury Yield settled at 1.78% (down from an intramonth peak of 1.94%), slightly up from the beginning of the month. The U.S. Bloomberg/Barclays Aggregate Index returned -0.1% in November.
- High yield posted another positive month as corporate credit spreads remained stable despite the continued sell-off in the weakest and most leveraged segments of the credit markets. Emerging market debt underperformed alongside equities.
- Commodities were up for most of the month but then finished flat as oil prices sold off due to higher than expected U.S. inventories as well as populist pressures arising across the Middle East that could test OPEC’s resolve to limit production. 1-month spot oil ended November at $55.18/barrel, up from $54.17/barrel at the beginning of the month.
- Expectations of robust U.S. holiday sales (goosed by earnings surprises from big box retailers) combined with liquidity support from the U.S. Federal Reserve (via balance sheet expansion driven by the Fed’s intervention in the repurchase markets) have helped give U.S. equities another leg up, which has pushed the forward earnings multiple to 17.8x over next 12-month earnings.
- ‘Long duration’ plays that have defined 2019 (long maturity bonds, corporate credit, premium growth stocks, low volatility equities) are gaining momentum as investors seek to catch up with this year’s popular trades. Investors don’t expect the U.S. Federal Reserve to upset the apple cart like it did in 2018 when the Fed hiked rates and pared back its balance sheet.
- Until, the macro outlook shifts towards one of more synchronized global growth, investors will likely flock to the ‘sure’ thing which appears to be U.S. large cap growth and long duration bonds.
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